Convergence between satellite broadcasting and telecom service took another step forward as the United Kingdom's British Sky Broadcasting Group (BSkyB) acquired a nationwide broadband network, Easynet. Recently, the satellite pay-TV operator BSkyBunveiled details of its plans for the telecom market and what customers will gain in the coming year.
BSkyB, when it first disclosed its $373 million bid for Easynet, left no doubt that it planned to become a triple-play operator but, until now, it hadn't disclosed details of those plans. Now that it owns Easynet, the company has tipped its hand a bit regarding what it's going to do with its prize.
Some of the highlights of BSkyB's strategy include a plan to launch full Voice over Internet Protocol (VoIP) and IPTV services in 2007. The operator also revealed that, in the second half of this year, it plans to deploy broadband and push video-on-demand (VoD) services as it steps up its drive to become an integral part of the digital home. A VoIP softphone also is expected later this year as a prelude to full VoIP services next year.
Meanwhile, BSkyB has begun an aggressive expansion of Easynet's residential reach. With about 95 percent of Easynet's business (until now) in the business market, the company's footprint covered only about 20 percent of U.K. households, reached via unbundled local loops from 233 BT exchanges. By the end of next year, Easynet says, the company plans to have expanded into 1,200 exchanges, covering between 70 percent and 80 percent of U.K. homes.
Even not counting Easynet, BSkyB this year has been accelerating its plans away from offering just traditional satellite-TV services as it looks to boost revenues from alternative platforms. At the beginning of the year, it launched "Sky by Broadband" and "Sky by Mobile." Sky by Broadband lets Sky's satellite customers legally download movies over broadband. Sky by Mobile, as the name implies, delivers such content as news directly to compatible mobile handsets. The company claims that, since the launch, it has tracked as many as 70,000 video streams per day being sent to mobile phones. It also claims something in the neighborhood of 10,000 subscribers have signed up since the service went commercial in January.
But many questions do remain. The biggest one is what will happen to Easynet's business ISP operations across Europe and wholesale customers in the United Kingdom? One of BSkyB's major attractions to Easynet was its established network and customer base, but some of those customers don't currently fit into the BSkyB model--even though published reports cite Chief Executive James Murdoch stating that BSkyB would remain fully committed to business customers. Likewise, analysts have been concerned since the beginning with regard to such triple-play rollout effects to customers. Like any other acquisition, integration will be complex and any mistakes could affect the existing customer base of both businesses.
Investors believe that while over the long term the strategic direction taken by BSkyB is a positive one, the impact on both existing cash flow and profit forecasts could be substantial, leading to another major re-evaluation of the stock by the market place.
Likewise, those investing in BSkyB who are hoping to enjoy a period of significant cash return from the company may have to wait a bit longer.
Through this acquisition, BSkyB could rapidly come to dominate the U.K. broadband market, sending rivals into similar acquisitions in an effort to effectively compete.