Broadband specialist Pipex buys up Homecall

By Matt Whipp

Posted on 23 Mar 2006 at 15:44

LLU broadband specialist Pipex has bought up comms company Caudwell Communications to take control of its Homecall business.

Pipex doesn't say how much it paid for Caudwell. The company includes a £43m bank debt, which Pipex says it has paid off. It was also not profitable for 2004 - the result of a customer acquisition programme. Pipex claims Homecall is now profitable on a before-tax basis.

The extent of this is hinted at by Pipex, which claims the acquisition will bring it an extra £2m in pre-tax earnings for this year, rising to £5m in 2007.

Caudwell's costly customer acquisition programme took the Homecall customer base to half a million. Pipex claims a large number of these live in and around exchanges it is in the process of unbundling and that 350,000 already use more than one service, i.e. broadband.

Once the acquisition is complete, this will translate as 29 per cent of Pipex's broadband customer base buying other services. It claims customers taking multiple services from a provider are significantly more loyal - an important factor when price wars in broadband services are constantly throwing special offers at consumers.

Homecall also brings with it a high street sales channel, in the form of its links with Phones4U, and a significant telesales force.

Chairman of Pipex, Peter Dubens, said: 'This acquisition brings with it four very important elements: additional scale, high street and call centre sales channels, accelerated returns on our LLU strategy and significant cross-selling opportunities.

'In terms of scale, we will now have over 1 million customers in the UK across broadband, voice and hosting... Pipex traditionally sells over the Internet and the acquisition brings significant call centre sales expertise and importantly access to high-street footfall through a distribution agreement with Phones4u. We can use these distribution channels not only to drive new business but also cross-sell our hosting and broadband services, a model that should generate financial benefits as well as significantly increase customer retention. As a result, we expect the financial effects to be immediately beneficial to Pipex's shareholders.'

The buy comes at a time when broadband prices look to be bottoming out. Even so, comms companies are reluctant to pass the cost of supplying increased bandwidths needed to provide TV and other multimedia services onto their customers, so some consolidation may be inevitable.