sky watches broadband move article today

Sky watches broadband move
24 July 2006
By TOM PULLAR-STRECKER

Sky TV won't rule out following its British sister company BSkyB by launching its own broadband service, a strategy that could make it a possible buyer of ihug.


However, it is playing down the likelihood of such a move, saying it has done well cooperating with telcos rather than competing with them.

Pay-TV provider BSkyB last week shook up the British telecommunications market by offering free 2 megabit per second broadband plans with 2 gigabyte traffic caps to its 8 million pay-TV customers. It is taking advantage of unbundling and its ability to cross-subsidise broadband plans using receipts from its pay-TV service.

BSkyB also launched 8 megabit per second plans with huge 40 gigabyte data caps for just E5 ($NZ15) a month and a 16 megabit per second service with unlimited downloads, subject only to a fair use policy, for E10 a month.

Media giant News Corp is the largest shareholder in both BSkyB and Sky TV in New Zealand, and Sky TV spokesman Tony O'Brien says the Kiwi company will be watching BSkyB's initiative, given their relationship. However, he says Sky TV's strategy is to "focus on our core business which is pay TV".

He would not comment further on the prospect of Sky TV setting itself up as an ISP in its own right.

BSkyB laid the groundwork for its entry into the broadband market last year through the acquisition of local ISP Easynet for E211 million.

Thanks to unbundling, Easynet enjoyed a similar position in the British market to that which ihug aspires to attain in New Zealand. Telecom's network is due to be unbundled next year.

Ihug, New Zealand's third-largest ISP, was put up for sale by its Australian owner iiNet last week.

It is possible it may have gone on the block too soon for Sky to consider the opportunity. Mr O'Brien wouldn't rule out Sky buying the company, but reiterated that Sky's focus "at this stage is on partnering with ISPs rather than purchase".

New Zealand's fourth-largest ISP, Orcon, has expressed interest in buying ihug, but it appears unlikely any established ISP would pay a premium for its subscriber base. Ihug regulatory affairs manager David Diprose said last week that most ISPs were losing money on broadband plans.

As well as potentially reducing churn among its pay-TV base, BSkyB's broadband play will help it earn extra revenue from selling archived programmes and niche content to customers over the Internet through IPTV from next year.

IPTV is a more efficient means of distributing niche content to individual customers than satellite transmission, which is best suited to reaching larger audiences.

Telecom and Sky TV have experimented with a Sky set-top box that plugs into Telecom's broadband network and can receive programmes broadcast by satellite and sent over the Internet. Telecom's general manager of video services, Philip King, says the telco is having similar discussions with the Freeview free-to-air digital TV consortium.

Sky TV is spending $40 million converting its archived material from tape to disc, in part to pave the way for IPTV.

BSkyB's free British broadband service is available in areas where it has installed Internet access equipment in BT's exchanges – about a third of the country. It will spend E650 million over the next three years extending its coverage.

Ovum analyst Michael Philpott says its business case makes sense.

"Success in the British broadband market is going to come down to four things: scale, correct multimedia strategy, good customer service and of course brand - Sky are in a good position on all four fronts."