Sky joins ranks of free broadband service providers

Stuart Corner
Wednesday, 19 July 2006 12:02

Your IT - Home IT

Plans by the UK satellite TV broadcaster to offer a free DSL service to its eight million pay TV customers follow those by Europe's top cellphone retailer, Carphone Warehouse.
Sky has announced that it will offer subscribers a free 2Mbps broadband service, at a capital cost of £250 million and £400 million in reduced operating profit over the next the years.

Shares in BSkyB, which operates the service, fell sharply on news of the plan, and especially the cost estimates. BSkyB share price plunges 5.5 percent in the hours following the announcement.

UK researcher Ovum responded positively to the plan saying "The business case for Sky looks to make sense, as long as it can gain the required economies of scale, and increase customer ARPU through upselling voice and other value-added services."

Ovum noted that "At the end of the day, success in the UK broadband market is going to come down to four things: scale, correct multimedia strategy, good customer service and of course, brand - Sky are in a good position on all four fronts."

Sky says it expects its free service to be earnings enhancing by 30 June 2010, independent of any pay TV benefits. By this time it expects to have 10 million pay TV customers, over 30 percent to be broadband customers.

Integration with the satellite pay TV service will be a key to Sky's future service offering which will comprise high bandwidth DTH satellite delivery, always on broadband and massive local storage in the customer's home. There will be a single sign on for all services and individual devices will communicate by either wired or wireless connections.

In addition to the free service there will be two charged options: 8Mbps with 40Gb monthly download at £5 per month and 16Mbps with unlimited download t £10 per month. All three plans come with a wireless router at no charge and a 13 month subscription to a security service. There will be no charge for installation or connection. Sky claims that its customers will save at least £200 per year compared to the cost of comparable broadband offerings form major players, BT, Orange and ntl.

Sky expects to be able to upsell from the free service as customers' usage grows.

Sky announced in October 2005 plans to acquire broadband ISP Easynet which already had 232 exchange DSLAM network for £211 million. It is presently installing DSLAMs in 30 BT exchange per week and expects to have 1200 exchange covered by December 2007, giving it access to 70 percent of UK homes.

Sky will hire 1500 new call centre staff to support the service and is putting the customer acquisition cost at £80 per customer including al marketing and the wireless outer, this cost will be written of on installations.

• In April Carphone warehouse announced plans to offer British customers free broadband Internet connections as part of a phone services package under a strategy to "transform itself from a high-street retailer into an alternative telecoms operator". Carphone planned to install DSLAMs in about 1,000 telephone exchanges.