Sky has a broadband mountain to climb

After months of speculation Sky
says it will enter the broadband market next year. The
move is one of the industry’s worst kept secrets.

Sky
says it will start by targeting its existing TV customers.
Then it will focus on homes that are fibre-ready but not yet
connected.

In a media statement, chief executive Martin
Stewart says: “We want to provide the best possible sport
and entertainment experience to New Zealanders. A
high-quality, high-speed broadband service built
specifically for entertainment helps us do that.

Rumours
about Sky’s entry into telecommunications have swirled
around the sector for months.

Make that re-entry. The Vodafone
merger turned down by the Commerce Commission would have
got it there earlier.

And that wasn’t the only attempt.
In 2006 Sky took a look at buying ihug. It asked for an
exclusive due diligence period. Ihug refused, opened the
process and sold to Vodafone for $41
million.

Analysis: Slow moving Sky

Sky
entering the broadband market is welcome. The company has
much to offer and understands how to deal with
customers.

That said, next year is ages away in internet
years. Everything internet moves faster than other
industries.

By 2021 Spark will have 5G towers^{. Most likely, it will sell
fixed wireless as an alternative to the fibre services Sky
aims to sell. Vodafone may have extended its network and its
fixed wireless offering.}

It is also possible next generation
satellite broadband services will be available^.

Fibre is a better broadband
experience that fixed wireless or satellite. Yet not all
customers know that. ISPs will carpet bomb marketing for the
alternatives.

Stuff Fibre, the missed
opportunity

Likewise, New Zealand’s broadband
landscape could look quite different. Last week Vocus
picked up the 20,000 or so Stuff Fibre customers. A wave
of consolidation is long overdue.

The acquisition is not
enough to move the market share dial.

Even so, a larger
base gives Vocus more scope for economies of scale. And more
customers to crosssell energy and other products to. It
gives Vocus momentum.

Sky is short of cash. Buying Stuff
Fibre may not have been easy for the company. Yet, Stuff
Fibre would have been a good fit for Sky; a better fit than
for Vocus.

And anyway, Vocus is not awash in loose change
either. If the hard-up Australian-owned telco could cut a
deal, Sky could have found a way.

Reasons to buy
Stuff Fibre

Buying Stuff Fibre would have done three
things. First, Sky would enter the market with a crash and a
roar, wrong-footing rivals. Never underestimate the value of
shock and awe in a competitive consumer
market.

It could also have brought the expertise needed to
kick-start Sky’s plans.

The third reason Stuff Fibre
would have been a good buy for Sky is that, Stuff is also a
media company. ^{They
share some characteristics. While the Stuff Fibre customer
proposition is different to Sky’s, it’s not so
different.}

A virtual ISP

It is not well known
outside the sector, but Stuff Fibre is, in effect, a virtual
ISP. Stuff looks after the brand, sells subscriptions and
counts the money. Meanwhile, in the background, a company
called Devoli handles the technical side.

This is an ideal
model for Stuff with a well-known brand and few in-house
technical skills. The Virgin brand does something similar
overseas.

The virtual ISP model would almost certain work
as well for Sky. Maybe it still
will.

Tick-tock

Every day that ticks by is
another wasted day for a would-be ISP. By this time next
year about two-thirds of all people who can connect to fibre
will be using it. Of the rest, some will have chosen fixed
wireless broadband. Others may choose never to buy
broadband.

Other ISPs will have picked almost all the
low-hanging fruit by the time Sky gets its act
together.

Sky’s second strategy is to “focus on homes
that are fibre-ready but not yet connected.”

Take away
the two-thirds of home that will be connected by 2021. Take
away the people who don’t want or can’t afford
broadband. Then take away the fixed wireless broadband
users. However you cut the numbers, that does not leave much
of an addressable market.

More intense
competition

Which can only mean that Sky will need
to woo customers away from other ISPs. It still has sports
right, it still commands a lot of entertainment
programming.

The company says it will use these to pull in
customers. Maybe.

The obvious case to look at here is
Spark. Spark’s Spark Sport and its Rugby
World Cup streaming have been high profile. Nothing
draws in New Zealand customers more than the promise of
seeing the All Black in action.

Now here’s the bad news
for Sky: Spark’s fibre broadband market share fell during
the last year. That’s the time it was giving away RWC
streaming to new customers.

This tells you that Sky has a
mountain to climb. It never looked easy, but Sky has to put
its foot on the gas. It won’t get a second chance.

Sky has a broadband mountain to climb
was first posted at
billbennett.co.nz.

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