Sky and Liberty Global allegedly in talks for full-fibre investment

Sky is reportedly in discussions with Liberty Global to add further fuel to the full-fibre machine which is engulfing the UK at an increasing rapid rate.

After a new company, Liberty Fibre Ltd, was registered with Companies House in the UK last week, parent company Liberty Global has allegedly entered talks with Sky UK to add additional investment to the scheme. According to the Financial Times, with Sky moving away from satellite connectivity for its content proposition, the team are seeking more attractive wholesales terms, with Virgin Media providing a potential alternative.

As it stands, Openreach is the incumbent wholesale partner to Sky. The wholesale giant has enjoyed market dominance in recent years, though numerous ‘alt-nets’ and alternative providers are creating a much more competitive market. Sky is supposedly in talks with Virgin Media to use its fibre network to deliver its broadband and OTT content service, and the creation of another wholesale fibre business would further lessen the dependence on Openreach in the rural locations.

The new company, Liberty Fibre Ltd, will aim to deploy full-fibre networks in locations outside of the main urban areas, the primary focus for the vast majority of network owners. Virgin Media will become the anchor tenant of the network, though should the rumoured discussions continue as planned, Sky would become an investor in the scheme and a second customer.

For Liberty Global, attracting Sky as a customer would be a significant win.

Although it does not own any of its own network assets (fixed or mobile), Sky is one of the most successful broadband providers in the UK. Although Sky has stopped reporting total subscription numbers, most estimates put the total number of broadband customers between 6.2 million and 6.5 million. This would give Sky roughly a 20% market share, even with Virgin Media and second behind BT. Currently, Sky has a fibre penetration of 38%.

The commitment of a heavyweight such as Sky would certainly lesson the financial burden of deploying a fibre network in areas where ROI projections are certainly less attractive than the dense urban environments. The attractiveness of Sky as a customer only increases when you consider the increasingly popular OTT video drive and aggressive fibre broadband marketing campaigns.

Although Sky is still primarily known for being the premium satellite pay-TV content provider in the UK, the OTT proposition, Now TV, is becoming increasingly popular. After being acquired by Comcast, Sky is likely to attract additional advertising revenues from the parent-company to further consolidate an attractive position in the UK.

After years of neglect, the full-fibre market in the UK is gathering momentum very quickly. It is still years behind other nations across the European continent, but the creation of a new fibre wholesale player will add more fuel to the blaze as glass sweeps across the isles. Liberty Fibre Ltd is an interesting idea, and if it can nail Sky as an investor and customer, its prospects will certainly head north.

Unlimited data is inevitable with 5G, but try telling operators that

We’re quickly moving into the 5G era and many assume the concept of unlimited data bundles will be commonplace, but how will the telcos fare in this new world?

As it stands, the telcos are under pressure. This is not to say they are not profitable, but many shareholders will question whether they are profitable enough. Tight margins and a squeeze on core revenue streams are common enough phrases when describing telco balance sheets, but this could get a lot worse when you factor in unlimited data packages.

As Paolo Pescatore of PP Foresight pointed out, when you offer unlimited data you are effectively killing off any prospect of revenue growth per subscriber in the future. In some markets, there are still fortunes to be made, but in some, such as the UK where 4G subscription penetration is north of 100%, where are you going to make the growth revenues from when consumers are demanding more for less?

More consumers are seeking unlimited or higher data allocations but are not willing to pay for the experience. Some MNOs might be able to resist, but the more rivals who offer such tariffs the more the rest will be forced into line. It’s the race to the bottom which is profitable in the short-term, but growth will end quickly. The price per GB is only heading one direction and unlimited data allocations will end the prospect of upgrading customers.

O2 fighting for air

This is the conundrum which the telcos are facing in the UK right now. All four have announced their 5G intentions and all four are promising big gains when it comes to the next era of connectivity.

Starting with O2, the only one of the four MNOs not to have released 5G pricing to date, this is a telco which looks to be in the most uncomfortable position. Over the last few quarters, the management team has boasted of increased subscriber numbers, but this can only go on for so long in the consumer world. Soon enough, a glass ceiling will be met and then the team will have to search for new revenues elsewhere.

This is of course assuming it plans to go down the route of unlimited data, it might want to stick with the status quo. That said, if everyone else does, it will not be able to fight against the tide for fear of entering the realm of irrelevance.

The issue here is one of differentiation. The idea of attracting new customers by offering ‘bigger, meaner, faster’ data packages will soon end and telcos will have to talk about something else. O2 does have its Priority loyalty programme, but with rivals launching their own version this USP will fade into the noise.

Differentiation and convergence are two words which have been thrown around a lot over the last few years, though O2 has thus far resisted. Last year, CEO Mark Evans suggested he was not bought into the convergence trend and would continue as a mobile-only telco, though this opinion does seem to be softening.

If O2 is going to be competitive in the almost inevitable era of unlimited data, it will have to source growth revenues from somewhere. It is making a push into the enterprise connectivity world, which will bring new profits to the spreadsheets, though does it want its consumer mobile business to stand still?

Bundles of fun

This is where the other telcos in the UK have perhaps got more of a running start in the 5G era. EE has its connectivity assets in broadband and wifi to add value, as well as a content business of some description. Three is already known as the data-intensive brand, while its FWA push will take it into some interesting connectivity bundling options. Vodafone also has FWA, a fibre partnership with CityFibre and is arguably the leader in the enterprise connectivity market. The rivals are offering more than mobile connectivity as a stand-alone product.

Looking at Vodafone to begin with, the recent announcement is certainly an interesting one. The innovative approach to pricing, tiering tariffs on speeds not data allocation, will attract some headlines, while it is also super-charging its own loyalty programme, VeryMe. It has secured content partnerships with the likes of Sky, Amazon, Spotify and gaming company Hatch, while its FWA offering also includes a free Amazon Alexa for those who sign-up early enough.

Combining the FWA product or its fibre broadband service, courtesy of CityFibre, also gives them the ‘connectivity everywhere’ tag, a strength of BTs in recent years, to allow them to communicate and sell to customers in a different way. Perhaps it is missing a content play to complete the convergence bundle, but it is in a strong position to tackle the 5G world and seek additional revenues should the unlimited craze catch.

The same story could be said of Three. With the acquisition of UK Broadband, it has forced itself into the convergence game and kicked off the ‘race to the bottom’ with an unlimited 5G data offer. As long as you have a Three 4G contract, you can get 5G for no additional cost, assuming you have a 5G compatible phone of course.

Three’s strength and weakness lies in its reputation. It is known for being the best telco if you have an insatiable data appetite, this works very well for the 5G era, though it is also known for having a poor network. Three regularly features at the bottom of the network performance rankings, especially outside of the big cities where it has not done nearly enough to satisfy demands.

This will of course change over the next couple of months. Three is working to improve its network with additional sites and a new Nokia 5G core, however it will have to do a lot to shake off the reputation is has acquired over the last few years.

EE is perhaps the most interesting of the four. It has lost its position as the market share leader when it comes to 4G subscriptions, but it does have the reputation for being the best in terms of performance throughout the country. It is regularly the fastest for download speeds, but its 5G pricing is by far the most expensive to be released so far.

That said, with the BT assets it has for wifi and broadband, as well as the content options, there is plenty for the consumer to be interested in. Should BT be forced to readdress the pricing conundrum, it might not have the fear regarding a glass ceiling on revenues as there are plenty of other products to engage the consumer. It will be able to find additional revenues elsewhere.

MVNO no you didn’t

Outside of the MNOs, you might also start to see some competition. MVNOs are nothing more than ‘also rans’ today, but Sky has officially entered the 5G race. This is an interesting competitor, one who could cause chaos to the status quo.

Firstly, understand mobile is not the primary business for Sky. This is an add-on, where it is seeking to drive additional revenues and attract more customers through bundled services. It is the leader in the UK when it comes to premium content and has a thriving broadband unit also. Sky can add services on top of connectivity to make itself seem more attractive than the traditional mobile service providers.

Then again, there are only a couple of MVNOs who can pose this challenge. Sky is one, while there are persistent rumours Amazon wants to get involved with the connectivity game and Google has its own Fi service. These are also companies who are at the mercy of the MNOs in terms of the commercial agreement with the MVNOs, so damage is likely to be limited unless one network owner decides to go down the wholesale infrastructure route.

But you cannot ignore these companies. They are cash-rich, constantly searching for new ways to make money and have incredible relationships with the consumer. They are also the owners of platforms and/or services which are very attractive to the mass market; bundling could be taken into a new context with these firms.

Diversity is our strength

This is of course only looking at the services which are common throughout telco diversification plans today, there are other options. Orange has launched a bank, has experimented in energy services and is making a move towards the smart home in partnership with Deutsche Telekom. Over in Asia, gaming is an important element of many telcos relationships with consumers and this trend is becoming much more prominent in the European markets also.

Elsewhere, the smart home could certainly offer more opportunities for telcos to add-value to an emerging ecosystem, while the autonomous vehicles offers another opportunity and so does IOT. The issue which many of these telcos are facing is competition from the OTTs. Arguably, the battle for control of the smart home might already have been won by the OTTs, though the same could be said for autonomous vehicles and IOT.

In many of the emerging segments, telcos will remain a connectivity partner though they certainly need more than that. This will remain a consistent stream of revenue, though it will also sleepwalk telcos to utilitisation. In IOT, as an example, the major cloud players are crafting business units to engage enterprise businesses for edge and IOT services; this is a market which the telcos would love to capitalise on for both enterprise and consumer services.

Security is another which is increasingly becoming a possibility. The concept of cybersecurity is generating more headlines and consumers are becoming more aware to the dangers of the digital world. Arguably, the telcos are in the strongest position to generate revenue from this segment; there is trust in the brand and they have largely avoided all the scandals which are driving the introduction of new regulation.

Unlimited data is certainly not commonplace today, but with the services of tomorrow promising to gobble up data at an unfathomable pace, it would surprise few to see more people migrating to these tariffs. The question is how you make money once you have migrated everyone.

Diversification and the acquisition of new products is not a simple task, but then again, it is becoming increasingly difficult to imagine how single revenue stream telcos will be able to survive in the world of tomorrow.

 

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Sky becomes first MVNO to join the UK 5G race

Sky has become the first MVNO in the UK to join the 5G race, making use of the O2 network.

While Sky Mobile is little more than an ‘also-ran’ at the moment there could be some potential for the brand to cause headaches for the established players, both MNOs and MVNOs. As the leader in the UK premium content market and a healthy broadband business, there certainly are some gains to be made in terms of convergence.

“We will be the only mobile operator to be able to combine the launch of next generation superfast 5G connectivity with Sky Mobile’s unique features including Roll, Swap and Watch,” said Sophia Ahmad, Commercial Director of Sky Mobile.

All of Sky’s current data plans come with the Roll feature, allowing any unused data to be rolled into the next month, while Swap will allow any consumer to upgrade phones without changing contract. The Huawei Mate 20 5G X and Samsung Galaxy S10 5G will be available to customers in November, the target for the 5G launch.

“The mobile network operators need to watch out as this move poses a considerable threat,” said Paolo Pescatore of PP Foresight.

“It is becoming harder for telcos to differentiate on connectivity beyond price alone. Sky armed with its innovative mobile features and breath of content is very well placed to compete head on. For now, from an overall services perspective it seems to be in pole position.”

As we have mentioned before, the success of 5G will largely be reliant on the experience offered to customers as well as the price and value-add services. Relying on O2’s network to deliver its 5G offering might prove to be a weakness for Sky as the MNO has regularly featured at the bottom of rankings when it comes to customer experience.

Interestingly enough, this could create an entirely new dynamic in the connectivity segments.

Sky is not primarily a mobile business and never will be. Its mobile offering is an element of the wider convergence strategy to attract and retain customers, therefore profitability on connectivity is not the only concern. It will be a consideration for the management team, but lower margins can be accepted if there is a greater gain in the bigger convergence picture.

Traditional players have been trying to shift away from being overly reliant on mobile revenues for years, with some success stories but most of the time a maintenance of the status quo. As Sky profits are not primarily reliant on mobile a potential loss-leader position could be created to cause havoc and grow profitability in other business units as well as the overall Sky business.

With all four MNOs and now Sky to offer 5G services to consumers by the end of the year, the UK is set to become one of the most interesting markets to watch worldwide.

Sky saves the day at Comcast

Comcast managed to misplace 224,000 customers over the last three months, but this oversight was compensated for by the 304,000 net gain in subscribers which Sky brought to the party.

The cable cutting revolution might be causing some pain in the US, but in Europe, Sky is looking as strong as ever. The European premium TV leader might have seen revenues decrease by 3.3% year-on-year, but with the customer gains and EBITDA increasing 13% for the quarter, Comcast executives will be pleased with the returns this acquisition is delivering.

Total revenues for Comcast over the second quarter totalled $26.8 billion, a 23% year-on-year increase due to the inclusion of Sky, while EBITDA stood at $8.7 billion.

“Our company’s consistent, profitable growth is fuelled by our leading scale in direct customer relationships and premier content,” said Brian Roberts, CEO of Comcast.

“We now have nearly 55 million high-value direct customer relationships, including the 456,000 net additions in the second quarter, and a vast library of intellectual property and new productions that are extremely popular across generations and geographies. Our teams throughout the company continue to collaborate to make themselves and each other even stronger, and I’m excited about our growth opportunities ahead.”

Looking at the Comcast business, aside from cord cutting generation causing a bit of a headache, operations are holding strong. Broadband demonstrated growth, albeit at a slower rate, adding another 209,000 subscriptions to take the total up to 24.4 million consumer and 2 million business customers.

Although this would not be the worst earnings call to deliver to shareholders and the team did beat market expectations, it isn’t the most of comfortable positions. TV losses are going to start to weigh heavily on the business before too long, while internet subscription growth is starting to slow. The latter concern might well be heightened with more CSPs adding FWA offerings to their portfolio.

Which pans UK broadband leaders for woeful service

Consumer publication Which has slammed the UK broadband scene, pointing towards the unacceptable and consistently poor performance of market share leaders for customer service and performance.

According to its latest broadband satisfaction survey, BT, Sky, TalkTalk and Virgin Media supply broadband services to almost nine in ten of UK broadband customers, but these are the worst performers when it comes to meeting customer expectations. The satisfaction score has been built on whether customers are satisfied with their current service, and whether they would recommend it to anyone else.

The satisfaction score for TalkTalk and Sky stood at 50%, while BT was only marginally better at 51% and Virgin Media collected 54%. Year after year the heavy-hitters of the broadband segment have shown customer satisfaction is a low priority, with these results just emphasising the point.

At the top of the list, Zen Internet collected the plaudits while Utility Warehouse sat in second place. The challenger brands clearly recognise there is an opportunity to secure customers through customer service and experience, as opposed to competing in the dangerous race to the bottom or over-promising on speeds.

“It’s outrageous that the biggest providers are still letting their customers down with shoddy broadband, especially when we know that longstanding customers are the most likely to be overpaying,” said Natalie Hitchins, Head of Home Products and Services at Which.

“Anyone who is unhappy with their current provider should take back control and switch to a better deal – you could get better service and save hundreds of pounds a year.”

This is perhaps what is most frustrating about the status quo. With the telco industry geared towards aggressive customer acquisition as opposed to building a successful business through retention, profits must come from somewhere. Customers are lured into the traps with the promise of under-cutting current providers on price, but it is the loyal customers who are getting punished with price hikes.

Looking at performance, 27% of TalkTalk customers said they experienced slow speeds, below the telco’s promise, while this number was 22% for Sky customers and 20% for BT. 20% of BT customers also said they experienced network drop-offs, while 17% of Virgin Media customers said they had been left without a connection for hours or days at a time.

While the tendency to favour new over existing customers is unlikely to change at any point in the future, Ofcom is currently working on new rules which will force telcos to be more communicative with their customers when it comes to contract expiration and is also considering pricing practises. Both of these factors could have a big impact on the business with many customers already stating they will switch providers.

The other factor to consider is the emergence of alt-nets around the country. In days gone, customers dissatisfied with a poor performing provider would only have the option of other poor performing telcos, though there is increased competition emerging. The likes of Vodafone, making use of CityFibre’s fibre networks, Hyperoptic and Gigaclear are growing quickly, providing alternatives with satisfied customers.

“Unfortunately, the UK broadband industry is notorious for awful customer service, mid-contract price hikes, and poor value for money,” said Richard Tang, founder of Zen Internet. “Too many providers in this industry put short-term profit ahead of the customer, but at Zen we continually work to ensure that consumer happiness comes first and to reward the loyalty of our existing customers.”

The market leaders are seemingly happy in their current position. Many will state customer service is a critical aspect of their business, but year after year customers are dissatisfied. These numbers suggest no-where near enough is being done to evolve the profit-centric organisations or there is a level of incompetence present when devising new strategies.

Grey clouds gather over Apple as Netflix snubs imminent streaming service

Apple is on the verge of announcing something big, but its TV streaming ambitions have been undermined as Netflix dismisses any tie-up with the iLeader.

Speaking at a press event at the streaming giants HQ, CEO Reed Hastings said Netflix would not be partnering with Apple or allowing its content to be hosted on any streaming service it might announce. There are a lot of unknowns about the Apple announcement on March 25, but at least this has been cleared up.

Rumours suggest Apple is going to create a streaming platform which could potentially compete against Netflix, though this is only one facet of the increasingly fragmented content landscape. With Disney and AT&T’s WarnerMedia also set to weigh-in, consumer frustrations are unlikely to be relieved any time soon.

With content becoming increasingly fragmented, a platform which brings everything together could be the winning formula.

“Content aggregation is the holy grail,” said Paolo Pescatore of PP Foresight. “There is too much fragmentation in video/TV; no-one wants to sign up to different services and have numerous apps. It is a disastrous experience.

“Beyond having the right content, the user experience is key. This means getting the content people want in one place, with one bill, universal search and all that jazz. In reality, this is hard to achieve as typically half of a household wants sport and the other half want entertainment, movies and kids shows.

“Netflix has done a great job to date. However, more content and media owners will pull programming off its offering. This represents a significant opportunity for the likes of Apple who has scale and greater resources. There is a role for a small number of players in the future.”

One question which should get a lot of people thinking is what does an effective content aggregator platform look like?

  1. Single bill
  2. Single sign-in/authentication
  3. Integrated content library
  4. Universal search
  5. Consistent customer experience
  6. An excellent recommendation engine
  7. Buy-in from majority of content owners/creators

However, just because it is easy to set out the conditions for an excellent content aggregator platform, doesn’t mean it will a simple task to figure out. The final point, getting the buy-in from the content owner/creator ecosystem, is where anyone with such grand ambitions will find the biggest issue.

The best effort we have seen so far is Sky in the UK. Why? Because it has somehow managed to convince Netflix to let its content be hosted on the Sky discovery platform not its own.

Some might suggest a disproportionate amount of news in the content world is focused on Netflix, but there is good reason for that; Netflix is the best. Few can compete with the current depth and breath of content, the user experience, marketing clout and foresight of Reed Hastings and his team.

Without Netflix on an aggregator platform, there does seem to be a big hole. One of the issues is Netflix does not like handing across the experience associated with its assets to partners. It knows how to keep its subscribers happy so why would it allow a partner to potentially tarnish this reputation.

This is what has made the Sky partnership all the more impressive. Netflix has allowed its assets to be hosted alongside Sky’s on Sky’s discovery platform, marrying two of the best content libraries available to UK consumers in the same place. This is the sort of partnership which ticks all the criteria listed above.

Sky has made an excellent start on the aggregator model, but it needs to continue to add new partnerships, increasing the depth and breadth of its content library to ensure it continues to dominate the premium TV space. Amazon Prime should be a key target.

An interesting development over the next couple of months will be the impact of Disney’s streaming proposition. It will put a dent into Netflix, but how much remains to be seen. Disney does not have the depth or breadth of content Netflix is able to offer, the ‘originals’ and the newly generated local content around the world take it to another level, though Disney will be an excellent partner to have.

We do not want to decide on the Apple streaming proposition until we have had a chance to actually see it but losing Netflix as a potential partner is a significant dent. However, as long as gathers the buy-in from enough partners, creating a proposition which ticks all the criteria we have listed, there is hope for Apple is the services arena.

Sky flexes its AI muscles

Artificial intelligence might be the buzzword of 2018, but few actually know what to do with the technology. That said, Sky seems to be surging ahead of the pack.

At the Telco Data Analytics and AI conference in London, an interesting statistic was put to the audience; 60% of the AI R&D spend in the telco industry is being directed towards network optimization. This is certainly a valid quest, though the problem with inward R&D investment is that it won’t prevent the slow wander towards utilitisation. To create value, telcos need to be investing in projects which actually create value, drive diversification and capitalise on new revenues. This is exactly what Sky seems to be doing.

“We have a data liquidity problem,” said Rob McLaughlin, Head of Digital Decisioning and Analytics for Sky UK. “Getting data is not an issue, we get it without trying, it’s about getting value from it.”

It seems the Sky UK team has a lot of ‘nice to have problems’, which demonstrate the effective steps forward the business is making in the intelligence-orientated world. While many telcos are struggling with the basic concepts, Sky is really setting the pace.

Aside from the overwhelming amount of data, McLaughlin complained of the management teams attitude towards artificial intelligence. Here, the team aren’t resisting, but asking for solutions which are overly complex. McLaughlin pointed out the Sky business was missing out on the low-hanging fruit, the simple problems which AI can address, instead the management team is looking for the top-line, super-complex solutions which can bring about revolutionary-change.

As McLaughlin told the audience, this is frustrating, but at least the management team is embracing new concepts and technologies, even if they are trying to run before they can walk. This is arguably a perfect scenario however. Change is led from the top of an organization, and McLaughlin seems to be describing a culture which is desperate to embrace change and create value.

Another interesting point made by McLaughlin was a claim there was no POC.

“We launched these projects at scale from day one,” said McLaughlin. “We didn’t want to do a POC as it was a bit of an insult to our intelligence. Why do they need to test whether data is good for the business?”

This demonstrates the much-hyped fail fast business model which has been employed so effectively by the internet giants. These companies don’t need to prove there is value in personalising services, they just need to make it work. The only way to get the algorithms to work is to get them out in the real world, trained by data, honed by machine learning and real-time experiences. This culture of creating results, not trying to prove perfection, will certainly drive value for Sky.

McLaughlin’s team are implementing AI in four different ways at Sky. Firstly, using customer information to cross sell services and products. Secondly, increasing engagement with products and services customers have already bought. Third, anticipating customer needs and problems, a project which is saving Sky millions in customer services and improving the overall NPS score. Finally, AI is being used in media optimisation to improve the advertising platform.

While these projects are still in the early days, the results are clear according to McLaughlin. NPS has been improving, cost saving are being realised and proactive selling of product through personalisation is increasing. With the cross-selling side, the results are quite remarkable. The success of sales of Sky Sport products are up 57% due to two simple changes. Firstly, putting the product in front of the customer at the right time, Saturday afternoon not Friday night for example, and Secondly, selling the product in the right way. If you know you are engaging a football fan, tell them about the football benefits not Formula One.

“Just crazy we haven’t been doing this for 30 years,” said McLaughlin.

All of these initiatives are built on identity. For McLaughlin this is the most important aspect of any data analytics and AI programme, and receives more attention than anything else. If you cannot identify your customer, it is impossible to personalise services effectively. It seems simple, but it is an aspect which is often overlooked.

“If we have the opportunity to speak to someone, don’t tell them something, treat them as the person the data says they are,” said McLaughlin.

Sky might not have a reputation as an particularly innovative organization, nothing out of the ordinary at least, but this approach to data analytics and artificial intelligence is certainly worth noting. The culture is accepting and proactive, there is an attitude which is geared toward doing, not planning, and the objectives are clearly outlined. McLaughlin might have his frustrations, but if you want an example of an organization which is proving the value of intelligence, you won’t have to look much farther.

And the winner is… Comcast!!!!

Comcast has emerged as the winner of the drawn-out Sky acquisition battle with 21st Century Fox, offering shareholders £17.28 per share.

After 21 months, much bickering and passive aggressive commentary, the auction was completed on Saturday 22 September, with Comcast valuing the business at £30 billion. The unusual auction process was overseen by The Takeover Panel, an independent body established in 1968, whose main function is to issue and administer the City Code on M&A.

“We consider the Comcast Offer to be an excellent outcome for Sky shareholders, and we are recommending it as it represents materially superior value,” said Martin Gilbert, Chairman of the Independent Committee of Sky. “We are focused on drawing this process to a successful and swift close and therefore urge shareholders to accept the recommended Comcast Offer.”

“Sky is a wonderful company with a great platform, tremendous brand, and accomplished management team,” said Comcast CEO Brian Roberts. “This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally.”

In securing Sky, Comcast not only adds an additional 23 million customer relationships to its current subscriber base of 29 million, it also increases its footprint in international markets. Prior to swallowing the Sky business, Comcast attributed 9% of its revenues to the international markets, though this now increases to 25%. It’s a more diversified business, offering comfort for Comcast shareholders, while also creating a broad and varied content portfolio. Alongside partnerships with HBO and Showtime, Sky also brings with it a heavyweight position in sport content, a presence which has underpinned its success.

Looking more specifically at the auction process, it was a slightly unusual one. Starting on Friday night, both companies made a starting bid, with the lowest offeror at the commencement being afforded the opportunity to make an increased bid in the first round. In the second round, only the offeror that was not eligible to make a bid in the first round could make an increased bid. If there was not an increased bid in the second round, the auction would have been concluded, though it did run to the third (and final) round, where both companies were offered a final opportunity to increase bids.

As a result of this process, Comcast tabled a bid of £17.28 compared to £15.67 per share from 21st Century Fox. The winning bid represents a premium of 125% to the closing price of £7.69 on 6 December 2016, the last business day before 21st Century Fox’s initial approach. Sky has proven to be a very successful bet for investors representing a ten-year total shareholder return (since 1 July 2008) of +402%, compared to +97% as an average of the FTSE 100.

While this might seem to be the end of a prolonged saga, there are a couple of twists yet to be turned. Firstly, Comcast still has to convince shareholders to part with their assets, and secondly, what will the future hold for the Sky telco business?

In terms of the shareholders, for Comcast to officially secure Sky it will have to gain approval of 50% of shareholders. Fox/Disney currently owns 39% of the business and is yet to disclose what its own position will be, meaning Comcast will have to convince 82% of the remaining shareholders to be safe. Due to the Fox/Disney 39% stake, de-listing Sky will be an unlikely outcome (75% threshold is needed), as will squeezing out remaining shareholders (90% ownership is required). 21st Century Fox could remain a thorn in Comcast’s side for some time.

Another question worth considering is what to do with the Sky telco business. Comcast’s intentions in acquiring Sky have been clear; it is Europe’s most powerful content business; though the telco business comes with this prize. Sky certainly has a notable broadband business in the UK (roughly 6 million subscriptions) and has successfully launched its own MVNO, though it is currently unclear whether this is an area Comcast would like to develop or whether it will look for a sale.

According to RBC Capital Markets, an acquirer would have to shell out in the region of £4.5 billion to purchase the Sky telco business, though there do not seem to be many suitors. BT, Virgin Media and TalkTalk are too large for antitrust approval, leaving only O2 and Three in the telco space. Considering the precarious financial position of O2’s parent company Telefonica, and recent comments from CEO Mark Evans dismissing the convergence craze, O2 seems unlikely.

Like O2, Three has a large mobile business but no presence in the broadband space; a converged offer would be of interest to cash-conscious consumers. It is unknown whether Three parent company Hutchison would want to pursue this avenue, though considering it has begrudgingly spent and cash in the past, instead trying to use political influence to better Three’s prospects (it has a reputation as a moany, spoilt child for a reason), we can’t see this as realistic.

The only other option which would be on the table would be a player from the financial market, though RBC Capital Markets feels Comcast will retain the telco business without expanding it to the continent. Sky is demonstrating the convergence business model can work, and it is an important aspect of the offering in customer eyes; why would it want to undermine a healthy position. As the old Bert Lance motto goes, ‘if it ain’t broke, don’t fix it’.

The auctions bring to close a long-running chapter in the European content game, but this is by no means the end of the story. With its 39% stake in the business, 21st Century Fox can still be a prominent character.

Sky convinces Netflix to do the thinkable: move titles off its platform

Having initially announced a tie-up earlier this year, Sky has somehow managed to convince Netflix to loosen the grip on customer experience, integrating its biggest titles into a very chunky on-demand package.

As part of the partnership, Netflix content will be hosted on the Sky platform, allowing customers to access a huge number of on-demand titles without having to navigate between different streaming apps. Having to navigate through different windows to find the right content can be a frustration for consumers which Sky is certainly addressing, though it does seem to contradict the Netflix ambition to standardise customer experience across all platforms and partnerships.

Across one page users will be able to navigate through Sky’s content such as Patrick Melrose and Tin Star, HBO’s Game of Thrones, Showtime’s Billions and now, Netflix titles such as The Crown, Stranger Things, The Kissing Booth, Making a Murderer and Queer Eye. It’s a lot of quality content for one place, cementing Sky’s position as the UK’s king of content.

“Sky wants to position itself as an aggregator of services as underlined by recent tie-ups, bringing services together is to be offer users a seamless and integrated service experience,” said independent telco and tech analyst Paolo Pescatore. “Therefore, the move further increases Sky’s own value as a one stop shop provider. More importantly it will also get access to Netflix’s catalogue and metadata which will prove more attractive to Disney.”

“Europe lags the US when it comes to cord cutting due to numerous reasons. Among other things the pay TV penetration is a lot lower in Europe and has been dominated by a handful of players. However, both regions are seeing huge growth in binge watching driven by changing user behaviour towards on demand programming.”

The mega on-demand deal will cost £10 a month, alongside a Sky Q subscription, with a 31-day rolling contract available as an option. It might be more expensive than a normal Netflix subscription, but with Sky’s box set content available for £5 a month, professional bingers will be able to save money combining the pair.

Sky Netflix

While this is a massive coup for Sky, it is a strange turn of events for Netflix. Last week at IBC 2018, Maria Ferreras, VP of EMEA Business Development at Netflix, stated that while the business was open to partnerships the experience would remain consistent across all platforms and partnerships. In allowing Sky to host its programming on its own content platform, Netflix has essentially handed over the management of customer experience. It’s an interesting announcement with Ferreras insisting maintaining a high-quality and standardized experience across all platforms was critically important for the business.

That said, another ambition of the business is to make its content as accessible as possible. Improving accessibility is one aspect of the strategy to secure additional subscriptions as the growth rate looks like it is beginning to wobble. Perhaps this is simply a compromise. As growth momentum slows executives have to make difficult decisions, some of which they will not like, and maybe this is one. The drive for new subscriptions seems to outweigh owning the customer experience.

Now before anyone gets too excited about this being a possibility for every content platform, this will probably not be the case. Ferreras highlighted last week that each partnership is weighed on its own individual merit. There are frameworks in place to guide the parameters of each relationship, though the end product will entirely depend on who is sitting on the opposite side of the table.

Taking this an example, Netflix might have been happy to hand over the customer experience management because Sky has an excellent content platform which it has spent years honing; it is a solid experience with content easy to find. Others cannot say the same, take Virgin Media for example. We cannot imagine Netflix would allow a similar integration of content due to the cumbersome nature of the TV offering.

The search for new subscriptions will certainly take Netflix into some interesting partnerships. After the last quarter’s results, were subscription growth looked to stagger, there might be more pressure for executives to loosen the stranglehold on the platform, and be more flexible when it is discussing partnerships. Netflix still has the upper-hand when it comes to negotiations, though if it wants to maintain its lofty market cap ($152 billion!!!) it will have to be more pliable. Offering more access to its valuable customer data and behaviour insight could be one of those areas.

Sky strikes an ultrafast deal with Openreach

Sky UK has reportedly become the first customer of a new discount deal from Openreach to encourage use of Gfast technology.

According to the Telegraph, fixed line wholesaler Openreach has been offering discounts of up to 40% to entice ISPs to use its Gfast products. Gfast extracts more bandwidth from legacy copper infrastructure, of which Openreach has loads, and is therefore a lot cheaper to provide that fresh fibre.

In typical ISP over-marketing style, this Gfast service is being packaged as ‘ultrafast’, which is one order of magnitude faster than superfast. It’s not obvious where we go from there. Megafast? F*ckingfast? Sky is apparently also signing up for fibre, where it’s available, which will be marketed as OMFGfast.

The Telegraph piece indicates UK ISPs are conflicted about even offering faster broadband to their customers as slower service apparently provide more margin, which is depressing. Ofcom has been hassling Openreach to cut its process but if current prices still disincentives ISPs from trying to improve their offering then it looks like the UK broadband market is still somewhat dysfunctional.

Here’s a recent Openreach video about how great Gfast is.