Cable Tech

Sky May Dabble in DSL

Rupert Murdoch, it seems, is taking an increased interest in telecom. Having reportedly checked out Skype Technologies SA and passed on the asking price, Murdoch may now be looking at putting his satellite TV service provider British Sky Broadcasting Group PLC (NYSE: BSY) into the U.K. broadband market, according to media reports as well as industry sources. (See Readers Scoff at Skype Hype.)

A report in U.K. newspaper The Guardian suggests that BSkyB plans to use some of the proceeds of an expected £1 billion (US$1.75 billion) bond sale to fund its entry into the British DSL services market, where it would go head to head with incumbent (NYSE: BT; London: BTA) and multiple other existing broadband providers.

According to the newspaper's sources, Sky would enter the market by acquiring an existing broadband service provider and then invest up to £200 million ($350 million) in local loop unbundling (LLU), which would involve the installation of its own DSLAMs in BT's central offices.

Suggested acquisition targets include , which was the U.K.'s first LLU player, , and Video Networks Ltd. (VNL).

A senior U.K. telecom executive in the broadband sector, who prefers to remain anonymous, confirms that Sky has been investigating the business case for local loop unbundling. He adds that Sky is not the only European TV service with broadband aspirations, citing France's TF1 and Germany's RTL as others with their eyes on DSL.

BSkyB did not return our calls but had already declined to comment to The Guardian on the matter.

Multiple operators, including (NYSE: CWP) and Tiscali UK, are already investing in local loop unbundling, and, following a cut in LLU prices, more are expected to join the rush to sign up customers and launch triple-play combinations of voice, Internet access, and TV/video services. (See UK Regulator Slashes Unbundling Rates, Unbundling Heats Up in UK, and C&W Has $150M Broadband Plan.)

So why would Sky consider such a move? Because it has nearly 8 million residential customers that could churn to an alternative triple-play service provider, and Sky might find the extra bandwidth useful, says Graham Finnie, senior analyst at Heavy Reading.

"Strategically it makes a lot of sense. It needs to consider how content is going to be distributed in the future, and the economics of broadband over satellite aren't good. With telecom operators and ISPs planning triple-play services, including high-definition TV, Sky needs to fend off that challenge and hang on to its customers," reckons Finnie, who recently penned a report on the European broadband market. (See HR Tracks Europe's Need for Speed.)

The potential arrival of high-profile retail service companies such as Sky, which has a very strong brand, into the broadband sector could put increasing pressure on Europe's incumbent operators, which are already feeling the heat of competition.

According to a new report from Informa plc, Europe's incumbent operators have seen their aggregate share of the retail DSL market fall from 64 percent in June 2004 to 57 percent at the end of June 2005. During that same period, the number of unbundled lines in Europe rose from 2.5 million to 6 million, according to Informa's research.

However, BT comes in way below that average, with just a 35 percent share of the retail DSL market -- and an even lower share of the total broadband market once the cable operators' customers are taken into account. (See Eurobites: Access All Areas.)

— Ray Le Maistre, International News Editor, Light Reading

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