AS BT begins promoting its new television service this weekend, Dan Marks,
chief executive of BT Vision, is keen to stress the seriousness of the
group’s intent.
“What we are doing is pretty dramatic,” he said. “We are building a new kind
of television service – a very grand thing to do. It’s not often that you
can make grand statements like that but it’s warranted.”
Working closely with Microsoft and Philips, which will provide the set-top
boxes, BT Vision will offer a combination of Freeview and a wide range of
on-demand programming – sport, movies, music and much else besides – that
will be delivered through a BT broadband connection.
“We’re very confident that what we have offers compelling value and we’re
going to make it simple for people,” said Marks. “A free set-top box and no
mandatory subscription is pretty straightforward.”
It is intended to appeal to the “millions” of people who want more than the 40
or so digital channels available on Freeview, but who are “absolutely
resistant” to paying for more television on the terms on offer from Sky and
cable. In other words, those who do not want to pay a hefty monthly
subscription for a bundle of channels, some of which are of little or no
interest.
BT will offer many movies and programmes on a pay-per-view basis that it
believes many viewers will find both preferable and more affordable. In
addition, it will undercut Sky and Virgin Media on the price it charges to
watch Premiership football.
“We will have a very significant discount on what the customer would expect to
pay for Sky Sports,” said Marks. Through a deal with Setanta Sports, the
Irish company that has broken Sky’s monopoly over live Premiership games, BT
Vision will be able to offer 288 matches next season.
BT’s arrival in the pay-TV market underlines the extent to which the
convergence between telecoms and television is finally becoming a reality.
The satellite broadcaster BSkyB is recruiting hundreds of thousands of new
customers as a provider of broadband and telephony. Virgin Media, the
cable-TV group formed after last year’s NTL-Telewest merger, now includes
Sir Richard Bran-son’s mobile-phone company, from which it takes its name.
Tiscali, the internet service provider (ISP), has moved into television after
last year’s acquisition of Home Choice, a trail-blazer for video-on-demand
over broadband.
Orange, the mobile-phone company that now includes the old Freeserve internet
business, also has plans to offer television over broadband, as its sister
company in France does already.
That leaves Talk Talk, part of Carphone Warehouse, which made a landgrab for
the UK broadband market last year. It is the only leading player that has
not set out plans for television, although it has dipped its toe in the
content business after last year’s purchase of AOL UK.
Some analysts believe that the increasing competitive strain is already
beginning to show. Last week, shares in Virgin Media lost about 10% of their
value after it reported a grim-looking set of first-quarter results, the
first since the company’s rebranding in February.
Despite spending £25m on an advertising campaign featuring Uma Thurman, Virgin
Media lost nearly 47,000 customers, and suffered declining sales in every
one of its operations: consumer, business, mobile and content. Customer and
revenue losses were particularly marked in telephony and at Virgin Mobile.
Worse is to come because the figures have yet to show the impact of the bitter
row with Sky over the price demanded for access to Sky One and other “basic”
channels. Virgin’s loss of the Sky channels prompted 250,000 calls to the
company’s overwhelmed call centres. Steve Burch, Virgin Media’s chief
executive, admits there will be more customer defections in the current
quarter.
Frustratingly for Burch, the contrast with Sky could scarcely be more marked.
A week earlier, Sky reported strong progress in signing up new broadband and
phone customers, on top of another 70,000 TV subscribers. (BSkyB is 39%
owned by News Corporation, the ultimate owner of The Sunday Times.)
This week is likely to provide another unflattering comparison when BT reports
its results. Analysts believe that BT has maintained the momentum in its
broadband business, helped by the service and engineering problems that have
slowed the advance of Talk Talk.
Neil Berkett, Virgin Media’s chief operating officer, insisted that the
company is doing better than it might appear, and that signs of progress
were overshadowed by worries about the loss of television customers. “You
can’t withdraw channels like that [the Sky basic package] and not lose some
customers,” he said.
Berkett pointed to Virgin Media’s success in signing up 88,000 broadband
customers, and winning an award as best consumer ISP – unthinkable under the
old, unloved NTL brand. He said the loss of 115,000 prepay customers was due
to a new focus on more profitable contract subscribers.
The loss of 63,000 telephony customers was blamed on the company’s troublesome
billing systems, which have restricted pricing flexibility. When the company
completes a move on to new systems in September, this problem would
disappear.
“We’ll return to growth,” said Berkett. “We ‘ll return to growth in average
revenue per user.”
Some analysts are not so sure. Michael Williams at Citigroup told investors:
“The business fundamentals remain under intense pressure. Telephony decline
is set to continue due to uncompetitive price offering. TV is suffering from
lack of content and competition from Sky. Broadband growth is declining in a
fragmented market approaching saturation.”
In summary, the negative trends could get worse.
The problems that Virgin Media has suffered with billing systems and customer
service are telling. Talk Talk has suffered similar difficulties, its call
centres being overwhelmed by the response to its “free” broadband offer and
its engineers struggling to move customers on to its own network of
equipment in BT’s exchanges.
Carphone recently admitted that these unforeseen problems would cost it
£10m-£15m this year, partly because Talk Talk is having to incur losses on
hundreds of thousands of customers it is only able to supply via BT’s
wholesale service.
Sky’s entry into the broadband market last year made less of a splash, and it
set itself less demanding early targets.
However, helped by the army of engineers that it has to make house calls, Sky
has grown more smoothly, and is finding 70% of customers are willing to pay
for broadband, rather than accept a slower, free connection.
In the view of Enders Analysis, “Sky looks set to become one of the top three
residential ISPs in the UK within four years”.
Claire Enders at the firm said: “Who would have thought that the market would
move away from free because Carphone messed it up? People are happy to pay
for something that works. It’s just the best thing that’s ever happened to
BT.”
Many experts believe that BT Vison, and others hoping to offer television over
BT’s copper telephone wires, are running a risk by using the network to
delivera service for which it was never intended. A cable network, they say,
is inherently better suited for video, and more easily able to offer more
capacity and higher connection speeds.
Marks acknowledges that some customers in rural areas will not be able to
receive BT Vision because they live too far from their local exchange.
However, like Sky, Marks believes that customers will place their trust in
BT’s ability to execute on a nationwide scale. One of the appeals of “big
BT”, he said, was “we can send an engineer round, we can explain [BT
Vision], we can support it.
“When it sets its mind to do something, then the corporation is just hugely
impressive.”
