Tiscali to grab HomeChoice

ISP Tiscali UK (UK arm of Italian-headquartered internet service provider Tiscali) and triple-play provider HomeChoice are close to ink a merger deal worth GBP100 million (USD190 million). HomeChoice, which is owned by Video Networks, has struggled to win customers to its video-on-demand (VoD), internet and telephony services, attracting around 45,000 in London and Stevenage from a potential base of 2.5 million homes as it has failed to expand significantly outside of the capital. HomeChoice was among the first companies to offer TV over a broadband connection, but it has struggled to reach critical mass. They started a marketing push that coincided with a broadband meltdown, with Sky, France Telecom's Orange and Carphone Warehouse entering the sector. Moreover due to entry of new players in the market, it would be really tough to get enough margin to sustain as well as to recover CAPEX. Satellite television operator BSkyB is investing £400 million over three years to provide broadband services, following its acquisition of Easynet for £211 million. BT is also preparing to launch its BT Vision hybrid broadband video and broadcast television service, which will no doubt be backed by a high-profile marketing campaign. Homechoice doesn't currently offer a mobile phone service as part of the deal, a fact highlighted by the recent arrival of Carphone Warehouse and Orange with "free" broadband bundled alongside mobile contracts. More urgently, Sky has undercut both, offering free broadband to TV subscribers, and doesn't expect to break even on the deal for four years. So in overall, we can also see some unexpected moves by Tiscali in the coming months where acc. to speculation it can sell off its "outside Italy" operations to Vodafone or Orange or Telefonica.

The deal would reportedly give Tiscali access to HomeChoice's TV platform and content, plus a greater presence in BT's local loop exchanges. Tiscali UK wants to install its equipment in 600 of BT's exchanges by the end of the year under local loop unbundling. The obvious reason lies into the instant access to its own 1.1 mn UK subscribers with ready content and TV platform. Tiscali has a 10 percent market share in the UK, behind BT, NTL and AOL. The UK unit made up 44 percent of Tiscali's revenues and nearly half its earnings before interest, tax, depreciation and amortisation last year. Tiscali UK is very vulnerable because it doesn't have anything other than broadband. Unless they have a triple-play operation it's hard to see how they'd survive. Under terms of the deal, the combined HomeChoice-Tiscali UK entity would be valued at about 500-700 million pounds, the source close to the deal said. Video Networks' controlling shareholder Chris Larson would receive an 11.5 percent equity stake in the new entity, with a chance to increase this to 20 percent over time if profit targets are met. Since It is very difficult to build a brand and get any traction in this competitive environment so the analysts are expecting Tiscali to eventually sell off its operations outside of Italy.