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Thursday, July 29, 2010

Big telcos' profits rise on flat turnover

The big UK telcos (in which I now include Sky as a multi-platform operator) are doing well - BT's pension deficit is eroding fast, it has increased profit on lower turnover, and its shares are bumping along. It is a relatively well-managed utility rolling out VDSL at a satisfactory rate. Virgin media, the cableco, is turning over almost £4b/annum but still making net losses. Meanwhile Sky is making £878m/annum based on a slightly higher revenue than BT (about £6b), revealing how nicely their wholesale business is doing pre-regulation. Between them they have cash flow of over £15b, and only BT Wholesale is really price-regulated.
Sky is having something of a High-Definition TV windfall, getting customers to pay significant premiums for HD channels. In the UK, Sky gets away in its duopolistic market with its HD premiums of £10/month ($16CAN) for 18 channels plus sports/movies. To a Canadian, this looks odd - Canada (Videotron in Montreal) gives 37 HD channels (including the main French language sports channel for hockey, and 2 movie channels) for $3/month (under £2), and the HD boxes cost no more than $200 (though listed at $300, stores are discounting).
It will be fascinating to see how ESPN and BT Vision compete with Sky and Virgin - but given Sky's marketing ability, bundling of Tivo-type services and 8m customer base, they may be able to resist price cuts and approach that magic "special offer" (sic) $99US/month including broadband that Comcast is presenting to its customers as a bargain! Of course as Sky gives away basic broadband with a puny 2GB cap, it does provide some value compared to Comcast - in LLU areas.

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