BT launches offensive on Sky's broadband bulge: markets believe Talk Talk will be the loser

Ian Livingstone parked his tanks on Rupert Murdoch’s lawn and the analysts clearly liked what they heard.  At the end of Friday, after some fluctuations, BT shares closed 7% above their peak in March. Sky shares were 10% down from a similar peak. Talk Talk was down 20% from its March peak.   

Thre is a lot of small print to digest with regard to what is really on offer, including price and quality of service but we can almost certainly see an overall surge in demand for broadband, as Sky and BT battle it out with a mix of special offers and retention deals. We may also see the re-introduction of competition in the local loop when Sky retaliates, not just with deals to ratin its customer base but by backing investment in Birmingham style open access broadband networks across those parts of the UK where business would benefit most from plugging gaps in BT’s offerings – and is therefore likely to share the cost. We can also expect to see an extended range of Sky apps over smart phones. 

We can also expect vigorous Sky support for Talk Talk and pressure on Ofcom to expedite the investigation of BT’s margin squeeze on resellers. In parallel Sky will seek to disengage Virgin from the attempt to delay the Birmingham open access dark fibre networks by suing the EU for saying that such municipal enerprise did not constitute state aid. The way will then be open for Sky to ally with Virgin’s new owners, Liberty, and also threaten to sue the EU for allowing the BDUK framework to bypass state aid rules and give single tender business  to BT – unless the latter either withdraws its case or the rural networks are made open access. Sky will, in any case, almost certainly take legal action to ensure that the small print of the EU clearance (which was conditional not absolute) will be enforced

The result should be a win-win for business and consumers as BT gets the take-up and cash flow that will enable it to return to its pre-1997 investment trajectory and Sky (and others) bankroll the construction of world-class open access fibre networks, to leapfrog fibre to the cabinet before it runs out of capacity to carry the additional traffic. Theat leapfrog may prove critical to the future competitiveness of teh UK because  scale of BT’s investment in content, which may have only just begun (next comes the bidding for the FA Cup), the announcment that BT will spend £300 million on a share buyback and the size of the increase in the pension fund deficit, mean, however, that BT may not have the funds to go beyond its current infrastructure investment programme for some tiem to come.

However, provided the open access networks are not crippled by business rates and are also genuinley available for BT to also use, we could yet see the UK returning to world leadership in the global information society on the back of healthy market competition.

Am I being too optimistic? Is the light at the end  of the tunnel an oncoming train? I hope not. But that also reminds me – last night I was told that the obstacle to making shared use of the National Rail Communications Network was contractual, not statutory. Similar issues appear to apply to the some of the other national fibre networks that are sitting unused – albeit the role of business rates should not be under-estimated.

I think we may be in for an interesting time as Sky, Liberty, Carphone Warehouse and also the mobile operators, for whom BT wifi is a formidable rival, plan their responses to BT’s “declaration of war”. I hope that the responses will including covering the final 10% in co-operation with local authorites, large and small and also affordable fibre to premises for inner city and suburban businesses as well as to rural business parks.

One interesting question raised in response to some of the analysts comments concerns the actual cost and quality of service being offered by BT, including that to pubs who will need the bandwidth to carry local wifi, as customers keep up with other sports (and vidoe gossip) while watching “the big event” on the main screen. Will the screen freeze when wifi traffic surges at half time? Will pubs wanting resilient quality of service end up paying for BOTH? 

If so, the ultimate losers may include premier league footballers as BT, Liberty and Sky realise there is little point in bidding against each other for exclusivities that markets, and not just regulators, deny them or markets fragment over the kaleidoscope of content that is available over the Internet.    

Enhanced by Zemanta