British Sky Broadcasting Group Plc has entered the broadband war with its long-awaited “free” broadband package. The UK satellite broadcaster is seeking to capitalize on its huge customer base and the “convergence” trend of customers using one supplier to satisfy their broadband, entertainment, and telephony needs.
The announcement follows free broadband packages from the likes of the Carphone Warehouse Plc and Orange SA, as well as triple and even quad-play services from cable giant NTL Corp.
BSkyB said it would invest around 400m pounds ($730m) at the operating profit level over the next three year to develop its broadband offering, which it said is a transformational new initiative for Sky.
The broadband service will be launched in August and will be available to Sky customers only. It comes in three flavors: Base, Mid, and Max. Sky said it expects about 30% of its 8.1 million customer base to sign up to a 12-month contract.
Base, the entry-level package, is the only package that is free-of-charge, with no monthly charges other than a customer’s existing Sky TV subscription and monthly line rental charge. Base will come with a 2MBps connection speed and a 2GB monthly usage allowance. While Sky will throw in a free Sky-branded Netgear wireless router and a free McAfee Security package (for 12 months), there is a connection fee of 40 pounds ($73), and if customers opt for a professional home installation where an engineer installs a wireless network, there is a 50 pounds ($91) fee.
Mid offers 8MBps and up to 40GB monthly usage allowance. However, there is a 5 pound ($9.12) monthly fee and a 20 pound ($36.51) connection fee. Again a professional installation costs 50 pounds ($91), but a wireless router and McAfee Security is provided free-of-charge.
The premium package is known as Max. This offers up to 16MBps, but only if customers live in an LLU area. There is an unlimited monthly usage allowance and free professional installation, as well as free wireless router and free McAfee Security. The package costs 10 pounds ($18.25) per month.
With all of these broadband packages, Sky is offering its relaunched Sky Talk telephony product for 5 pounds ($9.12) per month. This gives customers unlimited UK landline to landline phone calls at any time. However, customers still have to pay the usual BT line rental. Sky Talk already has 200,000 customers, and while it is true that customers do not need to have Sky Broadband in order to use it, Sky is not offering free international calls.
In addition Sky says that customers will gain five @sky.com email addresses, and will benefit from the exclusive Sky Broadband personalized portal, which features a personal address book, search, photo management, and access to Sky’s online entertainment services such as recommendations, Sky+ Remote Record, and more than a thousand movie and sport clips.
The broadcaster first mooted a residential broadband service last year, thanks to its 211m pound ($373m) acquisition of UK broadband service provider Easynet Group Plc in 2005. It currently has 373 unbundled exchanges and is unbundling on average 30 exchanges per month. It aims to unbundle a further 827 exchanges and hopes to reach 70% of the UK population by the end of 2007 with a total of 1,200 exchanges unbundled. Sky said it costs 40,000 pounds ($73,000) per exchange for installation of racks, power supply, and backhaul.
Sky digital customers who are not covered by Sky’s broadband LLU network can sign up to Sky Broadband Connect, which is similar to the Mid package and costs 17 pounds ($31) a month.
Shares the broadcaster fell on the London Stock Exchange as the market fretted over the costs of the service. Sky has said it will invest 400m pounds ($730m) over the next three years and hopes the service will be adding to the bottom line by 2010, excluding any pay-TV benefits.
The broadcaster no doubt hopes that its formidable marketing machine and customer service will be able to convince users to switch from their existing ISP to its broadband offering. There are approximately 8 million broadband users in the UK, and analysts expect that number to rise to up to 20 million by the end of the decade, with roughly 80% of UK households expected to have broadband by 2010.
Sky is expected to unveil its full-year results on July 28, and is thought to be closely looking at a possible acquisition of the UK internet access operation of AOL LLC, after parent Time Warner confirmed speculation that it was reviewing the unit along with other European operations. AOL UK is known to have 2.2 million subscribers, 1.3 million of whom are on broadband.
It is hard to say much, said chief executive James Murdoch. We would look at it purely from an opportunistic basis. We do not have a huge M&A appetite and are not interested in paying high prices as we have a huge opportunity with our existing customer base.