BSkyB‘s acquisition of Easynet could mark a dramatic business shift for the company and could provide a clue for the future direction of the direct-to-home (DTH) satellite industry overall. Customers seek a “one-stop-shop” for their services and BSkyB now is more strategically poised to provide such an offering.

The acquisition of the U.K. Internet service provider (ISP) gives BSkyB the ability to offer a triple play of services — voice, video, data — without the need for a partnership with another company and also allows BSkyB to deliver television via Internet protocol (IP).

Today, most satellite pay-TV operators craft partnerships with telcos and look to have their channels and content distributed via Internet protocol television (IPTV) in order to offer triple-play options to customers. But the BSkyB acquisition of Easynet creates a satellite triple-play operator that could influence the future of several companies outside of the United Kingdom. Other satellite pay-TV operators may explore a similar acquisition, while telcos may abandon their satellite partnerships as they ramp up IPTV service offerings. Even though the full ripple effect of such an acquisition has not yet fully materialized among the customer base, the evolution of the industry will be forthcoming and most likely will take different forms around the globe.

BSkyB Has More Work Ahead

While BSkyB has struck first in the move to bring all its offerings under a single umbrella, is not entirely clear where a satellite triple-play operator will fall into the telecom space, said Paul Erickson, a telecoms analyst at IMS Research. “They will face a learning curve in the voice and broadband Internet business like any new entrant,” he added. “Overall, ultimate success will be determined not by the triple play itself, but more significantly by their ability to deliver on certain consumer fundamentals of the pay- TV and communications sectors, such as competitive pricing and packages, strong content, reliable service, on-target messaging and marketing, strong customer service and support.”

The acquisition of Easynet may not be the final move for BSkyB if the company really wants to ramp up its television-over-broadband strategy, according to Sarah Simon, a media equity analyst with Morgan Stanley. “If Sky’s strategy is to market its pay-TV service to broadband customers, it would make sense for Sky to follow up an acquisition of Easynet with further ISP purchases, which would boost the direct subscriber base,” Simon said in a research note written before the Easynet acquisition was announced. “ISPs that currently use the Easynet infrastructure include Onetel, which has also been cited in the press as a possible takeover candidate. On this basis, we conclude that the purchase of Easynet as a route to the acquisition of new customers would not be very effective on its own. This may necessitate further acquisitions in this field in order to boost the numbers of customers that may be addressed by BSkyB.”

Europe

With many European satellite pay-TV operators already working with telcos to provide triple plays, BSkyB’s acquisition may not necessarily be replicated in other countries within this region, but customers may now have some additional strategic choices as they look to expand their contracts.

In France, Canalsat and TPS have partnerships with France Telecom’s MaligneTV that make the satellite operators respective content bouquets available on digital subscriber lines (DSL). “We made a deal with [Canalsat and TPS] from the beginning,” Herve Payan, vice president of the content services division at France Telecom, told Satellite News‘ sister publication Inside Digital TV earlier this year. “We launched MaligneTV together with TPS and then later on Canalsat. Consumers can subscribe to both offers: MaligneTV on one side, which gives you the [set-top box] and the subscription to television access, and then you can gain access to . Then on the other side, you can subscribe to TPS or Canalsat.”

In other European markets, there are even stronger links between the dominant telco and the satellite pay-TV providers. In Portugal, PTM Multimedia, which runs TV Cabo, is linked with Portugal Telecom. In Spain, Telefonica has a stake in Sogecable, which owns the Digital+ DTH platform. However, Telefonica also hopes to be a major player in the television space with its Imagenio offering now a nationwide service. At the end of 2004, Telefonica reported only 8,000 subscribers for this service, but the company is forecasting fater growth over the coming year. Telenor owns Canal Digital, which offers DTH services to countries throughout Scandinavia.

Germany’s Premiere is not linked to a telco and, in theory, is in a similar position to BSkyB, but the U.K. operator’s acquisition of Easynet demonstrates a fundamental difference between BSkyB and other satellite operators, said Erickson. BSkyB, which has been far and away the most successful satellite pay-TV operator in Europe, simply has financial resources that other satellite pay-TV operators cannot match, he said.

“For some operators it may not make sense to make the big financial outlay to go tit-for-tat with telcos, who will still have a considerable learning curve to make it in the pay-TV business,” Erickson said. “It will not be an easy thing to compete effectively with the triple play for the simple fact that offering viable-quality voice, broadband speed, and hypothetically, a more real-time [video-on-demand] solution will require the acquisition of a company with at least a broadband Internet service business — no small capital feat if one is acquiring an Internet service provider with a large enough footprint to make it worth acquiring as a competitive enabler against large telcos.”

But the United Kingdom has traditionally followed different business paths than its European counterparts. One factor influencing BSkyB is that competition is heating up in the U.K digital television market to a level not found in other European countries, said Charlie Davies, a telecoms analyst at Ovum. “The U.K. market is already reaching saturation point in terms of pay-TV,” he said. “So, satellite was a monopoly previously in a high-value market and that is now changing. That is under threat. It is in Sky’s interest to level up the playing field and be ready for a time in the market where people want more on-demand content so it can build stronger revenues.”

United States

Like the European countries, the two satellite pay-TV operators in the United States, DirecTV and Echostar, continue to believe that partnerships will be the best way to go in terms of their television-over-DSL strategy, officials said.

“We have relationships today with Bell South and Verizon where they offer to their customers a bundle of communications services, including DirecTV for video,” said Bob Marsocci, a spokesman for DirecTV. “Where it makes sense, and where we have mutual interests, we will continue to have relationships with our telecom partners.”

Echostar offers a triple play package through its partnership with SBC, but Echostar spokesman Marc Lumpkin said the company is “exploring different broadband opportunities.” Echostar also will continue to look at Internet-via-satellite opportunities to beef up its offering to subscribers, he said.

BSkyB Will Be Watched

Other satellite operators will be monitoring BSkyB’s acquisition of Easynet to determine whether this is a model to follow, Erickson said. “I believe BSkyB will be an interesting bellwether for the viability of the satellite triple-play proposition,” he said.

Other satellite pay-TV operators have to be careful as they look to move into new areas. “The future for satellite pay-TV operators has many possibilities, but I think it would be a mistake to move completely away from their core business and area of expertise,” Erickson said. “There is a substantial amount of strength in offering a better, or even the best, pay-TV service in a particular market. For example, for many years DirecTV in the U.S. gained a substantial amount of subscribers, many away from cable, by the strength of its sports offerings.”

Davies believes satellite pay-TV operators could look more into IP to deliver solutions in the future. “There might come a stage where using satellites to distribute content will be more expensive. So, operators might question their whole role as satellite operators. But this is much longer term.”

–Mark Holmes

(Robert Marsocci, DirecTV, e-mail, ramarsocci@directv.com; Marc Lumpkin, Echostar, Marc.lumpkin@echostar.com; Paul Erickson, IMS Research, Paul.Erickson@imsresearch-usa.com; Andrew Barron, Modern Times Group, 00 46 8 562 000 50; Sarah Simon, Morgan Stanley, Sarah.simon@morganstanley.com; Charlie Davies, Ovum, charlie.davies@ovum.com)