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After months of speculation Sky says it will enter the broadband market next year. The move was the industry’s worst kept secret.

Sky says it will start by targeting its existing TV customers. Then it will focus on homes that are fibre-ready but not yet connected.

In a media statement, chief executive Martin Stewart says: “We want to provide the best possible sport and entertainment experience to New Zealanders. A high-quality, high-speed broadband service built specifically for entertainment helps us do that.

Rumours about Sky’s entry into telecommunications have swirled around the sector for months.

Make that re-entry. The Vodafone merger turned down by the Commerce Commission would have got it there earlier.

And that wasn’t the only attempt. In 2006 Sky took a look at buying ihug. It asked for an exclusive due diligence period. Ihug refused, opened the process and sold to Vodafone for $41 million.

Analysis: Slow moving Sky

Sky entering the broadband market is welcome. The company has much to offer and understands how to deal with customers.

That said, next year is ages away in internet years. Everything internet moves faster than other industries.

By 2021 Spark will have 5G towers1. Most likely, it will sell fixed wireless as an alternative to the fibre services Sky aims to sell. Vodafone may have extended its network and its fixed wireless offering.

It is also possible next generation satellite broadband services will be available2.

Fibre is a better broadband experience that fixed wireless or satellite. Yet not all customers know that. ISPs will carpet bomb marketing for the alternatives.

Stuff Fibre, the missed opportunity

Likewise, New Zealand’s broadband landscape could look quite different. Last week Vocus picked up the 20,000 or so Stuff Fibre customers. A wave of consolidation is long overdue.

The acquisition is not enough to move the market share dial.

Even so, a larger base gives Vocus more scope for economies of scale. And more customers to crosssell energy and other products to. It gives Vocus momentum.

Sky is short of cash. Buying Stuff Fibre may not have been easy for the company. Yet, Stuff Fibre would have been a good fit for Sky; a better fit than for Vocus.

And anyway, Vocus is not awash in loose change either. If the hard-up Australian-owned telco could cut a deal, Sky could have found a way.

Reasons to buy Stuff Fibre

Buying Stuff Fibre would have done three things. First, Sky would enter the market with a crash and a roar, wrong-footing rivals. Never underestimate the value of shock and awe in a competitive consumer market.

It could also have brought the expertise needed to kick-start Sky’s plans.

The third reason Stuff Fibre would have been a good buy for Sky is that, Stuff is also a media company.3 They share some characteristics. While the Stuff Fibre customer proposition is different to Sky’s, it’s not so different.

A virtual ISP

It is not well known outside the sector, but Stuff Fibre is, in effect, a virtual ISP. Stuff looks after the brand, sells subscriptions and counts the money. Meanwhile, in the background, a company called Devoli handles the technical side.

This is an ideal model for Stuff with a well-known brand and few in-house technical skills. The Virgin brand does something similar overseas.

The virtual ISP model would almost certain work as well for Sky. Maybe it still will.

Tick-tock

Every day that ticks by is another wasted day for a would-be ISP. By this time next year about two-thirds of all people who can connect to fibre will be using it. Of the rest, some will have chosen fixed wireless broadband. Others may choose never to buy broadband.

Other ISPs will have picked almost all the low-hanging fruit by the time Sky gets its act together.

Sky’s second strategy is to “focus on homes that are fibre-ready but not yet connected.”

Take away the two-thirds of home that will be connected by 2021. Take away the people who don’t want or can’t afford broadband. Then take away the fixed wireless broadband users. However you cut the numbers, that does not leave much of an addressable market.

More intense competition

Which can only mean that Sky will need to woo customers away from other ISPs. It still has sports right, it still commands a lot of entertainment programming.

The company says it will use these to pull in customers. Maybe.

The obvious case to look at here is Spark. Spark’s Spark Sport and its Rugby World Cup streaming have been high profile. Nothing draws in New Zealand customers more than the promise of seeing the All Black in action.

Now here’s the bad news for Sky: Spark’s fibre broadband market share fell during the last year. That’s the time it was giving away RWC streaming to new customers.

This tells you that Sky has a mountain to climb. It never looked easy, but Sky has to put its foot on the gas. It won’t get a second chance.


  1. The South Island trial run doesn’t matter in the big picture ↩︎
  2. Cheaper perhaps, but unlikely to be as cheap as fibre ↩︎
  3. Media triva fans might recognise the two companies share common roots. Both stem from Wellington Newspapers in the 1980s. ↩︎

18 thoughts on “Sky has a broadband mountain to climb

  1. Sky TV could have been bigger than Vocus or Vodafone for Broadband if it had purchased ihug 14 years ago. The future was never about more satellites.

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