October 13, 2005, 18:15 BST
The satellite operator is rumoured to be planning a move into local loop unbundling, which analysts believe could be a major strategic move
BSkyB is reported to be planning an aggressive move into the broadband market, which would put the satellite broadcaster into direct competition with BT.
According to The Guardian, BSkyB is planning to spend hundreds of millions of pounds buying a broadband service provider and rolling out a high-speed network across much of the UK.
BSkyB surprised City analysts on Tuesday when it announced plans to issue a corporate bond to raise up to £1bn. The company hasn't yet said how it plans to spend the proceeds of this bond.
As well as buying an existing broadband ISP, Sky is rumoured to be considering spending up to £200m to install its own broadband equipment in BT's local exchanges — a process known as local-loop unbundling (LLU).
LLU allows rival telecoms operators to compete with BT by offering different wholesale services while using BT's own telephone network infrastructure. Services can potentially be faster or cheaper.
Sky's current set-top boxes use a dial-up connection to the Internet, and there has long been speculation that this could be upgraded to a broadband connection. Ian Fogg, senior analyst for broadband and VoIP at Jupiter Research in Europe, believes any plans Sky has in the broadband space could have major implications for the market.
"This will be a big strategic play. It can't just be about IPTV, or video-on-demand, or straight broadband access. It has to be all of them," Fogg told ZDNet UK, adding that it has always been only "a matter of time" until Sky upgraded its dial-up connections.
If Sky does give its satellite TV customers a broadband connection, it would then be able to offer much better interactive services, including gaming and gambling. It could also offer IPTV over the broadband link, rather than broadcasting by satellite.
While Sky could set itself up as an LLU operator from scratch, it may make more sense to buy an existing ISP. It's unlikely that regulators would allow it to buy the newly-merged NTL and Telewest, and BT is much too big for Sky to consider acquiring.
Fogg believes Sky is more likely to buy a smaller ISP, perhaps Easynet, which already has a successful LLU network.
BSkyB swoops for Easynet
October 21, 2005, 15:05 BST
The local-loop unbundling ISP's board has unanimously recommended shareholders accept Murdoch's £211m offer
BSkyB confirmed on Friday it has made a cash offer of 175p per share for Easynet — an offer that values the ISP at £211m.
According to BSkyB, Easynet directors have unanimously recommended to shareholders that they accept the "fair and reasonable" offer.
The Murdoch-owned satellite TV provider said it had decided to acquire Easynet, which registered EBITDA of £8.9m last year, because of its significant broadband presence in the UK as well as its efforts in local-loop unbundling.
To date, Easynet has unbundled 232 local exchanges and was also the first major company to take on BT in providing wholesale broadband with its LLUStream product.
It also numbers several big names in its corporate roster, including Christian Dior, H&M and Volvo, and local councils including Reading and Slough from the public sector. According to figures from BSkyB, Easynet has also unbundled lines to 18 percent — or 4.5 million — of UK homes, with 23 percent expected to be unbundled by July 2006.
James Murdoch, chief executive of BSkyB, said the acquisition will allow the company to find new outlets for its entertainment offerings.
He said in a statement: "Today's offer reflects the exciting opportunities that now exist to combine quality entertainment with significant high-speed connections. Entertainment is at the core of Sky's success... We see value for families in moving well beyond just another triple play to offer a new level of connected entertainment and communications services."
It's thought BSkyB may look to turn Easynet into more of a consumer, rather than business, ISP, opening up the potential for BSkyB and Easynet to cross-sell broadband and video-on-demand services to each others' customers.
Aside from expanding BSkyB's product range, the acquisition may have broader implications for the UK broadband market as a whole. With homes likely to be BSkyB's focus, Easynet's LLUStream — used by other companies, including Onetel — could fall by the wayside.
Ian Fogg, analyst at JupiterResearch, said: "If the LLUStream offer is slowly wound down or cancelled, it would be increasingly difficult for smaller broadband ISPs to remain competitive," as they would be tied to BT for wholesale access and consequently to lower speeds. "It's a simple numbers game — with LLUStream they have the necessary scale but without the investment."
The acquisition marks the latest signal of a trend towards consolidation in the broadband market, following the news earlier this month of NTL's acquisition of Telewest and Pipex's buyout of Freedom2Surf.