The UK Internet population continued to grow very slowly in the fall of 2001, reaching 14.7 million home users (30% adult penetration rate). Although this slow pace of customer growth may give dot.com investors pause for concern, we found some good news on e-tailing to report, such as higher numbers of purchasers - to almost 9 million - and positive experiences online that will lead to repeat shopping. Books, clothes, DVDs and computer games were especially popular items. Bricks-and-clicks e-tailers like WHSmith, Argos and John Lewis are well positioned to take advantage of offline/online marketing synergies, but Amazon (around 3 million unique visitors) is impressive in execution. Tesco has retained its very wide lead over other online supermarkets, almost doubling reach to 9% of home Internet users in 2001, and Argos is also doing well.
This note looks in detail at the reseller business model, and in particular for BT service providers taking over BT lines, where Oftel has just mandated a ‘wholesale line rental’ product. We think the small international call segment is unappealing for entry as competition is already fierce. The new entrant will also find it difficult to establish a foothold on the local and national calls segments where substitution of mobile telephony is draining any dynamism from the market. Even more ominous is the advantage the BT Together packages have given BT over resellers in the customer segment most likely to be aggressively marketed by stretchy brands: families making off-peak and weekend calls to family and friends.