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BSkyB Posts Strong Subscriber Gains

By | May 22, 2002

      BSkyB is on a roll at the moment. The demise of ITV Digital can only be good news for the satellite operator as it continues to cement its position as the dominant force in the UK market.

      The operator’s quarterly results only served to underline this.

      The operator added 171,000 subscriber in the three months ended March 31. It now has close to six million subscribers in the UK market. Its average revenue per unit (ARPU) figure of GBP341 ($497) was up 11 percent from the same time last year.

      This all points to a healthy financial situation for the satellite operator. Pilar Manzanaro, a media equity analyst at Banque Paribas, told Interspace: “They continue to add DTH subscribers, although not as strongly as in previous quarters. BSkyB just hit the 5.9 million subscriber mark and management reaffirmed their target of seven million subscribers by December 2003. They have lost the wholesale subscribers from ITV Digital, but we expect BSkyB to get a good share of ITV Digital’s 1.2 million subscribers.” Ian Whittaker, a media equity analyst at Merrill Lynch, told Interspace, “The DTH subscriber numbers were ahead of forecast. It looks as though they are continuing to get good growth there. Revenues were in line and EBITDA was much better. It shows they have managed to control costs.”

      The increase in subscribers and ARPU are major positive developments. With content costs likely to come down, BSkyB will also be able to exercise greater cost control going forward. Its annualised churn rate of 10.5 percent is also impressive given the fact it has increased its prices twice in the last 12 months. It increased prices by around seven percent and is likely to make further price increases. These appear to have had little effect on the churn rate.

      BSkyB was affected by the continuing problems in the advertising market. Its revenues fell 11 percent to GBP178 million ($260 million) from the comparable period in 2001.

      Revenues from interactive services were stagnant. “Interactive revenues are an area that is still in development. It would be too optimistic to expect significant growth here,” said Manzanaro. “In following quarters, we expect revenues in line with the quarter just ended. Third-quarter interactive revenues came slightly below the previous quarters. However, this [did not] have a negative impact on revenues, as interactive represents a very small part, roughly 6 percent, of total turnover,” he added.

      Spectrum Tax

      There is also talk of the UK government imposing a spectrum tax on BSkyB. At the moment, BSkyB pays nothing to use spectrum whereas terrestrial operators must pay for access to airwaves. However, it seems highly unlikely that BSkyB will have to pay a so-called “satellite dish tax.” This follows recommendations made in a report concerning radio spectrum management prepared for the government by Professor Martin Cave of the Warwick Business School.

      Cave told Interspace that a charge should only be made if the spectrum could be used for something else. He added that his report was unable to resolve the issue of whether satellite downlinks did indeed impede other services. If they did, Cave believes that would be reason enough to levy a charge. Another key factor is that, according to Cave, the spectrum that BSkyB uses is not considered prime spectrum, so any charge made on it should reflect that. It appears that BSkyB has little to worry about here.

      Whittaker said: “We think the spectrum tax is a bit of a red herring. The Cave report seems to be referring to [when satellite operators have] spectrum that they are not using at the moment, and which could be used for something else. There is an opportunity cost involved in that. The thing is BSkyB broadcasts from around 14-16 GHz band range. Now, terrestrial players broadcast in the sub 1-GHz range. So, there is no overlap there.”

      He continued: “The tax seems to refer to non-geostationary satellites, rather than BSkyB, which transmits on Astra, which is in a fixed geo orbital position. So, I don’t think there will be a spectrum tax assigned to BSkyB.”

      –Mark Holmes

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