Post Office to deliver broadband connection

The DTI is ploughing in an extra £1.7bn

The Post Office is trying to reinvent itself. And since the internet has been central to its decline, it is fitting that the firm is turning to broadband provision to reverse its ailing fortunes.

Online services have spelled disaster for the average Post Office. Two years ago some 28 million people used their local branch each week, but now the figure is nearer 24 million.

The number of television licences bought online rose 84 per cent in 2005 and another 53 per cent last year. The number of web applications for driving licences shot up from 554 last May to 5,835 in April.

And where a modest 190,000 people renewed their car tax online in April last year, the figure was more than 630,000 last month. All these transactions used to be done in the Post Office.

So it is not surprising that, despite an annual subsidy of £150m and a total investment of £2bn since 1999, the network of 14,000 outlets is making losses of about £4m every week.

Hence trade and industry secretary Alistair Darling’s announcement last week of plans to close about a fifth of branches by 2009, and plough in an additional £1.7bn.

The Post Office is also looking to generate extra business. It already has some 400,000 customers for its HomePhone landline telephone service.

And, thanks to a £750m four-year agreement with BT Wholesale, it will be offering a broadband service by the autumn.

‘We are determined to develop new revenue from new services, and we are confident of a significant amount of new business that will help support the branch network and help it become sustainable in the long term,’ said a Post Office spokesman.

But despite the continued growth of UK broadband, success is by no means guaranteed.

‘It is a very competitive market, and the Post Office may have missed the boat by not getting into that market a couple of years ago,’ said Mark Blowers, senior research analyst at Butler Group.

Despite the restrictions of reselling BT Wholesale products, Post Office margins will benefit from low overheads, because of its existing network of shops.

But price pressure is intense – TalkTalk and Orange, for example, provide free broadband with voice deals.

At the other end of the spectrum, media giants such as Sky and Virgin offer broadband in bundles that include TV channels, interactive content and telephone services.

‘Content is where the action is, not the line itself,’ said Mike Cansfield, strategy practice leader at analyst Ovum.

‘It is still a growing market, so there are attractions, but the Post Office product will have to be pretty compelling to be competitive,’ he said.