U.K. cable operator NTL‘s move last week to acquire Virgin Mobile seems to be response to BSkyB’s move to acquire a terrestrial broadband service provider and certainly will put even more pressure on BSkyB, analysts said.
BSkyB made a splash in October when it announced plans to acquire broadband provider Easynet, a move which would allow the direct-to-home (DTH) satellite television service provider to offer the three components – voice, video and data – of the so called triple play offering without having to form a partnership with another company.
In response to BSkyB, NTL is aiming to boost its own competitive position by adding a wireless component to its current triple-play offering. The combined NTL-Virgin, which would have 10 million built-in customers, “intends to use the Virgin brand to offer a quadruple play of Internet, television, fixed line and mobile telephony,” NTL said.
The combination also would provide a stronger competitive threat to BSkyB, as the Virgin brand would allow NTL to extend its reach and offer more services than BSkyB, analysts added.
“The entity is positioned to offer a quadruple play bundle unified under the Virgin brand, which has far greater recognition across the country, and is typically strong with the younger segment,” Paul Erickson, a media analyst at IMS Research, said. “If NTL’s objective is to stake out the market by capturing younger demographics and utilizing the stronger brand recognition of Virgin to help shore up the marketability of a media company for the new millennium that transcends just being a cable or telecom company, then this conceivably is a step in that direction.”
BSkyB Going Mobile?
While BSkyB’s planned 211 million pound ($376.3 million) acquisition of Easynet must still receive government approval, the NTL-Virgin combination could force BSkyB to take another step and move into the mobile arena as well.
“Sky might take the view they need to do a deal with a mobile operator, even though it has taken a long time for them to get into triple play,” an analyst who spoke to Satellite News on background said. “BT is launching things like BT Fusion, which basically blurs the boundaries between mobile and fixed line. NTL could also have options with fixed and mobile. If Sky just comes in with just a plain fixed line offer, and products like Fusion prove to be successful, I think BSkyB would need to do something in this space.”
Angel Dobardziev, a telecom analyst at Ovum, said while it is not impossible for BSkyB to do something in the mobile arena, the company will focus on completing the Easynet acquisition before making any move that would be seen as a reaction to the NTL-Virgin combination. “I think they will want to work hard with Easynet first and make this work,” he said. “There is no precedent of satellite providers moving into the mobile space. As the markets converge increasingly and integrating fixed and mobile elements grows in importance, then we would expect strong interest from Sky to push into mobile. Until then, I think they will wait and see how they do with triple play.”
Another industry analyst suggested that the quadruple-play model does not necessarily give NTL a competitive edge over BSkyB. “There is some evidence that triple-play subscribers churn less than single and dual on cable,” the analyst said. “But the reality is that if you put the two cable companies together, 30 percent of the subscribers take the triple play and 70 percent of the subscribers choose not to. [NTL has not] executed triple play well, so to say they can provide another service is neither here nor there.”
There also is little evidence that subscribers want their mobile services bundled with other offerings, said Dobardziev, and Virgin Mobile customers provide lower average revenue per user than other mobile providers such as Orange, 02, 3, T-Mobile and Vodafone. “They are not getting a mobile network. They are only getting the subscribers. In offering quadruple play, they can offer bundles, but they can’t really offer integrated and converged services, which combine fixed and mobile services on a technical level such as BT Fusion. It does not quite give them the real quadruple element which on paper it looks like they have,” he said.
Before launching a quadruple-play offering, NTL also will have to handle the huge integration process, giving its competitors time to stake their claims in various markets. NTL already is merging with fellow U.K. cable operator Telewest, and a deal with Virgin Mobile also would involve a repositioning from a brand perspective. The integration process would be taking place at a time when BSkyB will be ramping up its offers, particularly in terms of high-definition TV and TV over DSL.
Will U.S. Market Follow Suit?
From a broader DTH market perspective, a question that remains unanswered is whether BSkyB and its Easynet acquisition will be the model other DTH providers will follow to help position themselves against growing competition from cable and telecom service providers.
In the United States, DTH service providers DirecTV and Echostar have forged partnerships with telecom service providers such as Bellsouth, Verizon and Qwest with DirecTV and SBC with Echostar to provide triple-play offerings. But the two satellite operators have made no specific overtures that would indicate that they see the acquisition of voice and data service providers as a necessary component for survival.
“It is clear we need to compete with the cable triple play, and we are doing that through our partnerships,” DirecTV spokesman Robert Mercer said. “In terms of bringing something in house or offering our own data or broadband service, we are exploring a number of opportunities.” Mercer declined to offer further details, noting that it is “a little early to have any more definitive discussions.”
At least one analyst believes DirecTV and Echostar will need to move beyond their current partnership models in order to remain competitive, as the public increasingly is looking to deal with the single point of contact that a standalone triple-play entity offers.
“I don’t see [the partnership] model continuing very long,” Jimmy Schaeffler, president of The Carmel Group, said. “It just does not make a lot of real good sense in most of the markets where telcos are looking for strong incremental revenue. It may make sense in a few rural or smaller marketplaces. But where they are with most of the new buildouts that I’ve noticed, they are going to want to do it on their own.”
Echostar is “looking at ways we can offer we can offer Internet ourselves through the satellites or terrestrial wireless or other means that we can make it economical,” spokesman Mark Lumpkin said. But he emphasized that the cost basis of offering broadband services would drive any move by Echostar. “We did offer high-speed [data] service through a company called Starband several years ago, and we could not make it economical — not only for the customers but for the two companies, as well,” he said.
Schaeffler discounted possible partnerships with satellite broadband providers such as Wildblue and Hughes Network Systems, saying the solutions offered by those companies are best suited for the rural markets only. DirecTV and Echostar “need a solution for the markets that are not rural. That is where the wireless component comes in.”
Without a terrestrial partner, DirecTV and Echostar ultimately may take a page out of the NTL playbook and go wireless, Schaeffler said. “One thing everybody’s talked about is the wireless side of the world,” he said. “If I were to estimate where they are spending most of their time, I would say it is on that front because that is just a really logical place to be doing this, more logical than anything else I can think of.”
–Mark Holmes & Gregory Twachtman
(Jimmy Schaeffler, The Carmel Group, 831/643-2222; Robert Mercer, DirecTV, 310/964-4683; Marc Lumpkin, Echostar, 720-514-5351; Paul Erickson, IMS Research, Paul.Erickson@IMSRESEARCH-USA.COM; Angel Dobardziev, Ovum, avd@ovum.com)
