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Gov Clear Comcast and Fox to Bid on Sky UK – But What of Broadband

Tuesday, June 5th, 2018 (3:32 pm) - Score 8,361

The UK Government’s Culture Secretary, Matt Hancock MP, has cleared both Comcast and 21st Century Fox to pursue their respective bids for Sky, albeit with caveats. The future of the business and its broadband ISP aspirations could be very different, depending upon who wins.

Firstly, let’s recap. Last year Rupert Murdoch’s Fox reignited its interest in Sky (they already own a 39% stake) by seeking to acquiring a larger 61% stake in the company, which valued Sky at around £18.5bn and has since been subjected to a protracted process of competition and regulatory review. At the start of 2018 this was then countered by rival Comcast, which tabled a more attractive offer of £22bn (here).

Comcast’s move was at the time deemed to be more politically and economically acceptable than Murdoch’s offer, not least because they don’t have the same UK media / news overlap. The Competition and Markets Authority (CMA) have already “provisionally” ruled (here) that 21st Century Fox’s bid might not be in the public interest due to concerns over media plurality (i.e. “too much control over news providers in the UK“).

Unsurprisingly Matt Hancock has today confirmed that he will not issue an intervention notice with regards to the proposed merger between Comcast and Sky. On top of that he has also given a conditional green light to Fox’s bid too, although this will only be successful if they support the CMA’s earlier proposed resolution (so far it looks like they will).

Matt Hancock MP, UK Culture Secretary, said:

“I agree with the CMA that divesting Sky News to Disney, as proposed by Fox, or to an alternative suitable buyer, with an agreement to ensure it is funded for at least ten years, is likely to be the most proportionate and effective remedy for the public interest concerns that have been identified.

The CMA report sets out some draft terms for such a divestment, and Fox has written to me to offer undertakings on effectively the same terms.

The proposals include significant commitments from Fox. But there are some important issues on the draft undertakings which still need to be addressed.

I need to be confident that the final undertakings ensure that Sky News:

* remains financially viable over the long-term
* is able to operate as a major UK-based news provider
* and is able to take its editorial decisions independently, free from any potential outside influence

As a result, I have asked my officials to begin immediate discussions with the parties to finalise the details with a view to agreeing an acceptable form of the remedy, so we can all be confident Sky News can be divested in a way that works for the long term.”

Sky’s Statement:

Sky welcomes today’s announcements by the Secretary of State for Digital, Culture, Media and Sport (the “Secretary of State”) regarding the proposed offers for Sky by Twenty-First Century Fox (“21CF”) and Comcast Corporation (“Comcast”).

In respect of 21CF’s proposed acquisition of Sky, Sky notes that the Secretary of State considers that the undertakings provided by 21CF have provided a good starting point to overcome the adverse public interest effects of the proposed merger that he has identified, and that DCMS Officials have now been instructed to seek to agree final undertakings with 21CF. The Secretary of State has stated that, dependent on the outcome of these discussions, he would hope to be in a position to consult on any agreed final undertakings within the next two weeks.

Sky also notes the Secretary of State’s final decision not to intervene on public interest grounds in relation to the Comcast offer for Sky.

Sky is considered to be Europe’s biggest pay-TV company and that side of the business is undoubtedly foremost in Fox’s mind, although few have considered its position in the UK’s broadband market where Sky is currently still the second largest consumer provider and runs a significant unbundled (LLU) network. In fact until recently Sky was one of the most positively disruptive influences in the broadband market but not anymore.

Sky’s financial results have long since stopped including any solid figures for their broadband base, which some believe may be because their subscriber growth has suffered a sharp slowdown (other ISPs have also experienced this). On top of that there have also been suggestions that Fox might lack a forward thinking strategy to invest in broadband, which could in turn signal a quiet desire to divest Sky’s broadband business.

However, giving up on broadband would be a risky strategy because the old models of TV distribution (via aerials and Satellites) are rapidly being replaced by newer broadband based methods (OTT), so it makes sense to hold both sides of the coin in your hands (e.g. Sky’s own NOW TV platform). Sky is still in the perfect position to capitalise on convergence but they need an owner who understands the market.

Until fairly recently Sky had also been heavily involved in early FTTH broadband trials (e.g. their joint trial in York with TalkTalk and independent trials elsewhere), but all this came to a sudden halt in 2016 when the company’s CEO announced that the operator would NOT build its own national fibre optic network to compete with Openreach (here).

Fast forward to today and Sky’s decision to forget about building its own network is starting to look increasingly at odds with the market, particularly with many of their rivals now ploughing masses of investment toward building precisely what Sky has chosen not to do.

The operator instead appears to be gambling on Openreach (BT) remaining competitive via G.fast and FTTP/H, which might be tested if a rising number of cheaper FTTH rivals (e.g. Vodafone, Hyperoptic etc.) start aggressively undercutting the incumbent. On the other hand it will take awhile before any of the alternative network providers, except of course Virgin Media, have built enough coverage to be a real threat.

On the flip side we have Comcast, which has a long established reputation (albeit one of very mixed quality) as a huge cable and fibre optic broadband provider (Fox is more of a media / content business). As a company Comcast might thus be more inclined to pursue an innovative broadband strategy or some bold connectivity centric mergers.

Just to put this in some context, Sky were one of the first ISPs out of the gate when FTTC (VDSL2) services launched and it worked well for them. This time FTTP and G.fast has sprung up from their rivals and we still don’t know where they stand. For now Sky seems to be in a state of broadband limbo and at the very least a deal might encourage them to finally make some decisions about the future. We await the outcome with bated breath.

Leave a Comment
19 Responses
  1. Avatar Chris P says:

    I think Sky know the future for their TV service is via the internet and would be foolish to not support that. Its much cheaper to send a box to someone’s house and have the customer plug it in themselves, like Amazon does, than to send an engineer. the new Sky Q is more reliant on LAN and WAN than the previous HD models. As the article points out though, does 21CF know or believe in that?

    Sky’s stepping into the MVNO space looked to me like they where hoping to do more than just dip their toe in the market, i wonder if they would eventually hook up with O2 or would Sky, 21CF and O2 be too much for uk gov to handle?

    1. Avatar Matthew Williams says:

      If 21st Century Fox gets Sky it won’t be them making decisions anyway as they have already agreed sell there Sky shares to Disney which is the only reason Disney has agreed buy Sky News from them during the interim period while buyout gets approved.

  2. Avatar Meadmodj says:

    I don’t think Sky will be interested in broadband at the moment. It’s too unpredictable and margins will increasingly be low. All they are interested in is the number of customers they can build to. Satellite is still the most efficient (at least for current/past customers) and they know that there isn’t going to be much change now in broadband terms for the next few years until the fibre network grows. They only do broadband via OR because of packaging their brand and there is a small margin to offset it. Sky has been very successful for on-demand, mobiles/tablets on the train etc. but for home use they need more people to have the higher speeds.

    1. Avatar JustAnotherFileServer says:

      The main reason why Sky would hold off from having a complete broadband service of their own would be because their only main competitor would be VM (as they provide a broadband service and TV).

      Sky is more likely to slowly move away from a satellite service and move onto providing TV via internet. The first stages of this has already taken place with the introduction of their Q boxes (which allow home network to distribute TV around the home). Also with the NowTV already providing a TV service over an internet connection.

    2. Avatar Meadmodj says:

      Yes I agree. The dish is now a deterrent for new customers. But BT has now exhausted FTTC and either people can get a decent speed on their line or they can’t. Gfast adds little in practice. Next step for Sky, or their new owner, is to to go after VM , Talk Talk and possibly BT as there offering are now looking poor compared with Netflix, Amazon Prime and the main 5. Up until now Sky have allowed a selection of their service to be delivered by others which might now change.

    3. Avatar JustAnotherFileServer says:

      G.fast would have worked if it was implemented correctly at the start, but it wasn’t. Instead BT thought it would do what it always does and put into service that is a make do kind.

      Sky will not go after VM as it’s already got an established network. BT only supplies it’s sports channels and includes the freeview service, so Sky is unlikely to think BT as competition against it’s TV service.

    4. Avatar Matthew Williams says:

      If it had been G.Fast via DP like it was originally going be I think it would of worked out better

    5. Avatar JustAnotherFileServer says:

      @Matthew Williams Indeed

    6. Avatar Mike says:

      Other issue is I suspect many on FTTC wouldn’t want give up their paltry bandwidth for TV.

  3. Avatar timeless says:

    not very keen on the idea of Comcast getting hold of the ISP side of things, given what they are doing over in the States…

    1. Avatar Mike says:

      If Comcast gets Sky I predict an exodus…

    2. Mark Jackson Mark Jackson says:

      I can’t see there being even the remotest chance of an “exodus” with Comcast taking the reins. The company is not a household name in the UK, while Rupert Murdoch’s creation is disliked by a sizeable proportion of people and he is a household name for many of the wrong reasons.

  4. Avatar Ynys Lochtyn says:

    Satellite is pants! Many of the channels are unwatchable as the signal breaks up the video freezes etc. Best consigned to the dustbin of history. Even basic fibre broadband is sufficient much better quality TV.

    1. Avatar Kev says:

      Hmmm, OK – I suppose we all must have that problem if you do 😀

  5. Avatar Sometimes but not always says:

    Should be nice that if Fox buys Sky the Comcast or whatever that can would let the other satellite networks to compete in the UK. Should be better than being slaves of one network as sky.
    And something more, stop the TV taxes too, that’s from the past now that the pay per view TV is something normal.

    1. Avatar JustAnotherFileServer says:

      What other satellite networks are you referring to?

    2. Avatar Chris P says:

      Sky Sports has gone up since the increased competition with BT Sport. Same thing happened with rail fares and utilities too. Competition where there is no real competition just ends up costing us consumers more.

    3. Avatar Sometimes but not always says:

      Just another, just read your comments; as Dish network, Directtv and some other that operates in US or another international than just the Sky and it’s monopoly of the pay per view channels.

  6. Avatar paulS says:

    Comcast over fox any day

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