UK ISP Sky Broadband Tops 4.9M Subscribers After Gobbling O2 and BE

Sky Broadband (BSkyB) has officially leapfrogged Virgin Media to become the country’s second largest consumer broadband ISP after it saw a sharp acceleration of growth by gobbling up O2’s fixed line subscribers. As a result Sky’s latest Q2-2013 report saw related customers grow by +519,000 in the quarter to total 4.906m (up from +152k added in Q1).

Readers will recall that Sky picked up around 500,000 of O2 and sibling BE Broadband’s fixed line internet and phone customers for £180m-£200m in March (here), which meant that it didn’t show up in their Q1-2013 results. Migration of the related subscribers over to the Sky Broadband network is due to begin this autumn and last for around 18 months (here).

It’s interesting to note, before accounting for the acquisition of O2, that Sky added +119,000 customers in broadband, +140,000 in telephony and +155,000 in line rental. The acquisition of O2 added a further 400,000 broadband subscribers (well below O2’s final Q1-2013 results of 519,400) and 153,000 each of telephony and line rental. It also cost Sky about £15m to integrate O2’s customers.

But Sky still refuse to divulge how many of their broadband customers have taken their superfast Unlimited Fibre broadband (FTTC) package, which suggests that the figures probably aren’t very good. Separately Sky has now unbundled 2,323 telephone exchanges (up from 2,202 in Q1-2013).

Jeremy Darroch, CEO of BSkyB, said:

“We have had another very good year of growth, with revenues up 7%, operating profit up 9% and earnings per share up 18%. The strength of our financial performance is a result of our successful transition to more broadly-based growth and sustained investment to create a better service and wider range of products for customers.

On the back of this performance, we are increasing returns to shareholders with the ninth consecutive rise in the ordinary dividend and we intend to seek approval for a further £500 million of share repurchases.

Over the course of the year, we added more than three million new paid-for subscription products. We finished the year strongly with 11% organic growth in product sales for the fourth quarter, reflecting good demand in all areas. It was a particularly significant quarter for home communications as good organic growth, combined with the consolidation of the consumer broadband and fixed-line telephony business acquired from O2, delivered well over a million product additions.”

Overall 72% of their LLU broadband customers are on fully unbundled (MPF) lines and the rest take SMPF. Sky also has 210,000 broadband customers on their BTWholesale based platform, which is up from 197k in Q1 and again probably due to O2’s addition. Some 35% of Sky’s customer base now take all three of TV, broadband and telephony (up from 32% last year) and the operator is home to 4,364,000 Sky Line Rental customers (up from 4,056,000 in Q1-2013).

Meanwhile the Average Revenue Per User (ARPU) per year also grew to £577 from £576 in the previous quarter and Churn increased slightly to 10.9% from 10.8% in Q1. Adjusted annual revenue also increased to £7,235m from £6,791m a year ago and operating profits hit £1,330m (up from £1,223m a year ago).

UPDATE 9:40am

Sky has also announced the launch of its NOW TV Box, which costs £10 and connects your TV (HDMI) wirelessly (WiFi) to the internet for video streaming of the broadcasters NOW TV content and other Freeview material (e.g. BBC iPlayer).