Tesco Mobile is exploring a return to home broadband more than a decade after Tesco sold its previous broadband business to TalkTalk. The Financial Times reports that early discussions have taken place about selling packages over the fibre networks operated by Virgin Media O2 and Nexfibre.
Nothing has been decided, and Tesco Mobile says it has no confirmed plans to launch broadband. The talks are therefore a long way from packages appearing on Tesco’s shelves or website, but the idea makes immediate sense. Tesco Mobile is jointly owned by Tesco and Virgin Media O2, giving it a direct relationship with one of Britain’s largest broadband network operators.
It would also begin with something most new broadband brands have to spend heavily to acquire: a huge pool of people who already know and use the company. Tesco Mobile has an estimated 5.8 million users, while Clubcard gives the supermarket a ready-made way to offer broadband discounts, points or package rewards.
Image credit: Financial Times
Tesco stopped offering its widely-adored Tesco Broadband service back in 2015
The opportunity is there, but it’s not going to be plain sailing
Tesco wouldn’t need to build a network. It would buy wholesale access and sell broadband under its own name, much as Tesco Mobile already buys mobile capacity. That keeps the enormous cost of laying fibre off Tesco’s balance sheet, although billing, ordering, technical support and account-management systems would still require substantial investment.
The numbers could work without being spectacular. New Street Research estimates that Tesco could pay around £15 per month for wholesale access and charge £25. After tax and operating costs, its earnings margin could remain below 10%. That’s nowhere near the margin earned by BT, but it would sit above the roughly 7% generated across Tesco’s existing business.
The harder question is whether Tesco can deliver support that lives up to the name on the bill. Broadband faults, installations and switching problems are more complicated than selling discounted mobile data. Tesco’s brand, along with Clubcard’s reach and enormous retail presence would give it an excellent start, but this remains an exploratory move. Until Tesco announces a network agreement, packages and a launch date, it’s a credible possibility rather than an incoming broadband provider.
