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Market Insight

BT raises pressure on BSkyB with free BT Sport offer

May 09, 2013

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BT will offer three pay TV sports channels for no extra charge to its broadband subscribers, a move aimed at defending its leadership of the UK broadband market and offering a lower cost pay TV alternative to BSkyB.

Despite its massive investment in sports rights, the centrepiece being a £738m three-season contract for rights to the Premier League, BT is effectively giving away the three channels - BT Sport 1, BT Sport 2 and ESPN - to more than five million residential subscribers. HD versions of the channels will cost £3 per month. Subscribers who do not have a BT broadband package will have to pay £12 a month for the SD channels or £15 for HD. In comparison, the cheapest BSkyB package including Sky Sports costs £42.50 a month.

BT said it would offer new customers BT Infinity, its high-end broadband package, for £15 a month. It previously cost £18. Copper broadband will cost £10 a month.

BT has also added exclusive deals for Moto GP, Women's Super League football, Australian A-League football and extreme sports from Red Bull Media House to its portfolio of rights, which already includes 38 Premier League matches a season, English rugby union, Serie A, the Bundesliga and the French Ligue 1.

The BT channels will be delivered over BT's high speed broadband network. The company said that 15m homes have access to the network, and that it will cover 90 per cent of the UK in three to four years. The package will also be available on the BSkyB satellite platform - although BT, and not BSkyB itself, will handle the subscriber management. They will also be available via YouView and Vision Plus set-top boxes and through a BT Sport App on PCs, smart phones and tablets.

BT revealed it was also negotiating a wholesale deal with cable operator Virgin Media and will also make the channels available in Ireland. The channels will launch on 1 August, with the first Premier League match kicking off on 17 August. The £3 a month fee for HD channels will be waived for one year for satellite customers who sign up before 1 August. The telco is also attacking BSkyB's lucrative pubs and clubs business, claiming to undercut its prices by 80 per cent, although with the more limited range of games.

BT customers wanting to access Sky channels, Sky Sports 1 and Sky Sports 2, also require a fibre broadband connection and an Internet enabled DTT box.

BT's costly move into the premium sports rights market last June was unexpected. Its pricing strategy means that it will gain zero additional subscription revenue from its broadband customer base other than the small fee for those choosing HD. This looks like an expensive way of defending this line of business from competitors including BSkyB - which reported 4.235m broadband subscribers at the end of last year, compared to Virgin Media' s 4.465m and Talk Talk's 4.053m.

At the end of 2012, BT had 6.569m broadband customers, constituting 30 per cent of the UK broadband market. BSkyB recently bumped up its broadband subscriber base through an acquisition of 0.5 million broadband subscribers in April 2013 from Telefonica UK, a move which will see BSkyB ending the first quarter of 2013 as the number two player in the UK broadband market.

Although BT's broadband customer base has been increasing steadily, with a 2.2 per cent average quarterly growth in new broadband subscribers over the last two years, it has not matched the pace of BSkyB's growth (4.3 per cent average quarterly growth). Sky's low-cost offer and existing customer relationships (via its TV service) have allowed it to rapidly gain market share. BT's free TV offer, and requirement for separate billing relationship for BT Sport via satellite, is aimed at stopping or even reversing the bleed of those customers which have both Sky TV and BT Broadband towards Sky's bundled communications services - although the low cost nature of Sky's communications services may make this an uphill struggle.

Regardless of the impact on Sky and BT broadband subscribers, the move is undoubtedly a blow to the other UK ISPs. Combined, BT and BSkyB dominate the ongoing expansion of the UK broadband market, having taken a 95 per cent share of net broadband additions in 2012, according to IHS estimates. It is likely that this harsh competitive environment will worsen further for the other players following the launch of the BT Sport offer.

While BT's offer appears to be primarily targeted at ertswhile BSkyB customers, the offer is also likely to lure some of TalkTalk's broadband and TV subscribers. TalkTalk's performance in the broadband market has been underwhelming over the last two years, with the exception of its recent addition of 10,000 new subscribers in Q4 2012 - the first net add increase in three years, driven by the telco's YouView rollout. With BT's newly reduced prices for broadband packages and free sports programming, the incumbent telco's offer will undoubtedly be appealing to a selection of both current and potential TalkTalk customers.

With BT Sport, BT is looking to also add incentives to its current subscribers to upgrade to its fibre-based product, BT Infinity. The company is promising better functionality and interactivity compared to its regular broadband packages, although details on the exact form of these enhancements are still thin. BT is pushing hard to deploy fibre optic broadband, with one of fastest commercial fibre rollouts globally, but take-up remains slow. IHS estimates there are roughly 100,000 FTTP (fibre-to-the property) customers out of BT's 1.3m Infinity customers (which are in fact primarily VDSL customers), across the more-than 15m homes passed. 

BT will be offering BT Sport to both new and existing customers of BT Infinity, though new customers would have to renew their minimum term contract for a further 12 months. Although BT has lowered the minimum term from 18 months, a factor which negatively impacted YouView uptake in the past few quarters, it is continuing to charge a £49 activation fee for the set-top box. BT Infinity customers wanting to access BT Sport will be required to pay an upfront cost of £199 for a set-top box, or a monthly subscription fee of £5.

In premium pay TV, BT is still a comparative minnow compared to BSkyB, despite launching its hybrid DTT/IPTV service BT Vision in 2006. Sports fans who already subscribe to Sky Sports (via BSkyB and cable) but have a BT broadband subscription will effectively get a free bonus in the form of the BT Sport channels and no obvious new incentive to churn from the satellite service. BT estimates that 40 per cent of its broadband subscribers take Sky Sports - approximately two million homes.

BT's sports offer is arguably already stronger than its predecessors Setanta Sports and ESPN, which each signed up more than a million customers. The company has more 'first pick' Premier League matches - 18 a season - which should enable it to secure matches involving the most popular teams like Manchester United and Liverpool. However, die-hard sports fans are unlikely to give up BSkyB's sports packages for BT Sport: it still has a stronger offer of Premier League matches (116 a season, including 20 first picks) as well as a wide range of other sports like cricket, golf, F1 motor racing and the Champions League (though BT might make a challenge for rights from 2015/16). BT's hard-won deal to wholesale the Sky Sports 1 and 2 channels is still in place and will continue beyond the end of the current season.

BSkyB, which has already seen off challenges from On Digital, Setanta Sport and ESPN, will clearly have to review its pricing strategy in the face of BT's new approach. BT is much larger than these former rivals and seems to be preparing for a long game. It will broadcast from studios on the Olympic Park in East London, and has taken out a ten-year lease on the facilities.

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