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

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.