Sky Broadband: The Americans kick ass

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There were times today at the Sky Broadband launch I had to remind myself I was actually in Britain. First was the weather of course (sweltering heat, more LA than London). Then there were the ‘folks’ on stage to use modern American parlance: James Murdoch, Sky CEO, and Brian Sullivan, Sky’s Director of Strategy.

Together the two Americans told us how ‘People had been paying too much for too little for too long’ – a thinly veiled attack on BT (didn’t they used to have a telephony partnership together?). But even the likes of Carphone Warehouse didn’t get away without a verbal doing over from the pair. Yes, they offered better prices, but ‘there were still too many conditions attached’.

So is Sky Broadband a considerably better deal than you can get at the moment?

Well, yes – it is – though there are a few catches which we’ll come to in a bit. The good news is you don’t even have to subcribe to a top Sky package to get broadband for free, which was widely expected to be one of the conditions.

In fact, it seems that Sky will be making a massive loss on the offering (at least initially) which explains why Sky’s shares fell 4.3 per cent following the announcement . Strangely the City, which never seems to think particularly long term, wasn’t best pleased by Murdoch’s pledge to put an initial £250 million into the venture with a further £400 million over the next three years.

But then News Corporation, which owns a 38 per cent in Sky, and which recently spent a small fortune ($580 million) on social networking site MySpace, knows probably more than any other company in the UK just how important the internet now is.

Certainly this is just the first step towards a fully ‘converged’ offering which will eventually allow Sky customers to download video content – both standard and high definition – via their broadband connection and ethernet-equipped Sky Plus boxes directly to their TV screens. Something that cable companies like NTL/Telewest which have fast two-way pipes that can bundle TV/telephony/broadband together are in a much better position to do, if only they could get their act together.

But before you get too excited by Sky’s offering which it’s widely claimed by the newspapers will save broadband customers ‘up to £300 a year’ it’s worth noting that, when it comes to offering fast broadband, Sky currently has exactly the same problems as cable – that of low penetration.

Through its deal with ISP Easynet (News Corp bought the company for £211 million earlier this year), Sky is only able to offer free broadband to around one in four homes. Probably OK if you live in London or a major conurbation but if you live in the Outer Hebrides then forget it. Instead if you want broadband you’ll have to sign up to Sky Connect – a service which compares badly price-wise with its competitors.

Sky certainly talks a good talk – and I’m sure there will be a few worried executives over at BT and NTL with their calculators working out a new price strategy this evening – but it will be interesting to see over the next few months whether it can actually deliver on its promise. And of course it will be interesting to see how a few more established players will react. One thing’s for sure the days of paying the best part of £30 for connection speed of 2Mb/s or even slower are well and truly over. That has to be good news at least.

By Chris Price

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