Sky could lure customers with cheap broadband
· Satellite viewers could get cut-price internet access
· Move would be 'typical Murdoch', says TV rival
Jane Martinson
Friday April 7, 2006
The Guardian
Satellite television subscribers could be given cut-price access to
broadband services under proposals being considered by BSkyB as part of an
aggressive push into the highly competitive market for high-speed internet
access.
Such a move would signal the dominant pay-TV group's desire to take on BT
and gain a share of the fledgling market for broadband services over
telephone lines.
Although no decision has yet been taken by the company, which is 39%-owned
by Rupert Murdoch's News Corporation, analysts believe such a pricing
strategy would be consistent with Sky's history of moving into new markets.
Sky kickstarted its existing 8 million-strong subscriber base by giving away
its set-top boxes at the end of the 1990s, for example. It also offered
subscribers access to Premiership football matches for as little as £2 a
month when it first won the rights to televise games in 1992.
Some analysts believe Sky could go so far as to offer free access to some
subscribers.
An aggressive pricing strategy from Sky would follow similar moves by rivals
in the highly competitive market. Retailer Carphone Warehouse is believed to
be considering a free three-month broadband trial followed by a rate of
£4.99 a month, half the price of the current best offer available. This
week, BT announced plans to offer broadband speeds of up to 8Mb - four times
its current speed - at no extra cost.
Sky, which bought broadband access company Easynet last year, is not
expected to start offering its own service until the second half of this
year. A Sky spokesman stressed yesterday that no decision had been taken
ahead of a proposed autumn launch. "We will not disclose any details about
our consumer offering until much closer to our launch," he said.
However, one rival TV executive described the plan to offer cut-price access
to existing subscribers as a "typical Murdoch move". "It has just the sort
of wow factor that he loves. Murdoch really wants to take on a big gorilla
like BT and win."
One proposal understood to be under consideration has been a cut-price deal
to Sky's top-tier subscribers - those, for example, who pay more than £40 a
month for movies and sports.
Sky executives, led by the chief executive, James Murdoch, are keen to take
advantage of increasing demand for internet-based services, especially among
younger customers. They hope that Sky's premium content, movies and sports,
will eventually prove popular among new broadband users.
Sky's broadband launch is one of many poised to take advantage of regulatory
demands that former state monopoly BT open its telephone lines to
competitors through so-called local loop unbundling.
By the end of this year, Sky expects the Easynet network to extend to half
of UK households, or 12.5m homes. Sky has declined to say how many of these
homes are Sky television subscribers.
An aggressive pricing strategy by Sky is likely to receive a mixed reaction
from City analysts and investors.
Some believe such a move could help reduce churn - the rate at which
existing subscribers quit - by giving a loyalty bonus. Indeed, by offering a
cheap broadband service, Sky could tempt existing basic-rate subscribers to
upgrade their package in order to gain access to broadband. Such a strategy
could also help the company meet its existing target of 10 million
subscribers by 2010.
However, the significant costs associated with moving into the highly
competitive broadband market have already raised some concerns. In a note to
investors, Goldman Sachs has estimated that the launch of digital subscriber
line (high-speed internet access) services will drain cashflow until 2010.
Analyst Chris Collett cut earnings estimates for Sky by 4% this year and 7%
in 2007 "to reflect operating losses in the early years of the broadband
roll-out".
The investment bank moved its fair value share price target from 620p to
570p, still well ahead of yesterday's closing price of 519.5p.
Easynet's UK Online service offers 1Mb broadband for £9.99 a month, with no
download limits.
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