Analysts: U.K.'s BT Sports Offer to Affect BSkyB's Broadband Growth

2:51 AM PST 05/10/2013 by Georg Szalai

The British telecom company added more pay TV subscribers in the latest quarter as its rivalry with the satellite TV giant continues.

LONDON – British telecom giant BT on Friday reported it added more pay TV subscribers in the latest quarter than in the year-ago quarter as analysts discussed the potential challenge the company could pose to satellite TV powerhouse BSkyB.

The BT Vision video service added 40,000 net new customers in the company's fiscal fourth quarter ended March 31, compared with 28,000 in the year-ago period. That brought the overall user base of BT Vision, which competes with BSkyB and U.K. cable giant Virgin Media, which John Malone's Liberty Global is in the process of acquiring, to 810,000.

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During the quarter, BT agreed to acquire ESPN’s U.K. and Ireland TV channels business, adding to its planned two sports channel launches. "Launching in August, the three channels, BT Sport 1, BT Sport 2 and ESPN, will show a wide variety of world-class sport and will be free with BT broadband, or $18.50 (£12) per month to non-BT broadband customers," the company said.

It had on Thursday announced the plan to offer the new sports networks, which will show some English Premier League and other soccer games along with rugby and other sports, for free to broadband customers, dragging BSkyB shares down more than 5 percent. The news was seen as the latest step in a growing rivalry since BT last year aggressively bid for English Premier League games. It outbid ESPN and took its position as the secondary broadcaster alongside BSkyB, which has long been home to the biggest amount of EPL games.

Analysts late Thursday and Friday chimed in on how the broadband-sports offering from BT would affect BSkyB, in which Rupert Murdoch's News Corp. owns a 39 percent stake.

"We do not believe BSkyB subscribers will leave en-masse to take-up BT Sports," UBS analyst Polo Tang wrote in a report. "However, by bundling BT Sports in with BT broadband for free, we think BSkyB is likely to see a slowdown in terms of its broadband growth."

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BSkyB's stock may remain under pressure "until after the start of the new Premier League season in August when take-up of BT Sports becomes clearer," he argued.

Explained Sanford C. Bernstein analyst Claudio Aspesi: "Switching to BT or taking the BT service if you are already a Sky customer is easy. Sky customers can get BT Sport on their Skybox, so switching to BT broadband and adding BT Sport for free does not require an upfront cost or an additional box for Sky customers."

Discussing the financial impact on BSkyB, he said it is "more nuanced." For every percent of BSkyB broadband customers that switch to BT, he estimates a loss of some $1.54 million (£1 million) in operating profit. He called that "hardly meaningful in the context of a forecasted operating profit of $1.99 billion (£1.29 billion)" this fiscal year.

But Aspesi added: "The real impact derives from the fact that future growth prospects for Sky will be diminished significantly. At a time when [pay TV] growth has come to virtually a standstill, management must be viewing growth in broadband and telephony as key…and this opportunity is now seriously weakened…BSkyB now faces a new pricing environment, in which it has lost the advantage it previously held with cheaper broadband prices. "

Will BSkyB lower its broadband prices in its showdown with BT? "There may be fears that BSkyB retaliates against BT by cutting broadband pricing leading to a negative impact on the whole triple-play market," said Tang.

"It is hard to see how under these circumstances Sky's management can raise prices substantially," said Aspesi. "We would expect them to wait to see how consumers react to BT's product before considering any retaliatory reduction in prices - most likely in the form of improvement in the existing offers and special offers rather than list price discounts."

Email: Georg.Szalai@thr.com
Twitter: @georgszalai

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