Local Loop Unbundling (LLU) – Digital-Lifestyles

Backgrounder on Local Loop Unbundling in the UK Pt 3/3

With all of these moves towards digital delivery in entertainment, we thought it would be worthwhile understanding one of the key items in this process – how to get the digital content to UK households.

Steve Kennedy is an acknowledged expert in the telecoms and data networks field, so it was an obvious choice for us to ask him to write an overview of how other IP operators can compete with BT – by creating their own data network. To do this, they need to put their own equipment into the telephone exchanges that connect to peoples houses. That process is Local Loop Unbundling (LLU).

Over three parts, we’ll give you a full background in LLU in the UK.

The two previous pieces gave an overview of LLU and which companies are players in the UK; and LLU Penetration in the UK and the (un)Economics of it.

OpenLLU
The operators should have joined forces and built a single LLU infrastructure between them and then competed on service. This would have meant a second national network to compete with BT’s 21CN allowing operators to compete with BT on their own terms.

Wales First For BT's 21CN Next-Gen Network Rollout Also a single network would have meant it could go to many more of the 5,600 DLEs than the 1,200 everyone’s competing for at the moment.

Unfortunately competition is so fierce between the telecoms operators it will never happen – much to their joint detriment.

Broadband Competition
BT is still the biggest player by far and they’ll try and increase market share when they launch their 21CN. Many operators are underestimating the effect of BT’s 21CN and how quickly BT can launch it.

When they do launch, they are trying to get back to a situation whereby everyone else once again becomes a BT reseller.

Virgin Media have around 4m customers, but they have little money for expansion and are likely to use LLU in future to provide broadband services. They’re stance is even worse now Sky have pulled their basic channels, which is likely to cause customers to migrate to Sky and if enough go, then Virgin Media may be in a sticky situation (the city won’t look kindly on a reduced customer base).

Wireless is the next big hope
Unfortunately there’s very little spectrum available for wireless broadband in the UK, though 2.5GHz is going to be made available for auction later this year, but it wont be cheap. It was reserved for 3G use, so there may be bids from 3G operators but it’s also bang in the middle of the frequencies WiMAX can use (BT have already said they’re interested in bidding for it).

Other companies who do have spectrum are: –

* PCCW (UK Broadband) who have a national 3.4GHz license.

* Pipex Wireless who have a national 3.6/4.2 GHz license.

It’s not clear whether the recent Pipex sale announcement covers the wireless side or not.

Future
Content will be key, access will just be a delivery channel for content and broadband will just be a commodity item (making it even more uneconomic to roll-out).

There’s going to be even more consolidation in the industry and BT will win either way (more LLU customers mean BT get more customers, if it fails, BT Wholesale get more customers).

BT will also dominate when they roll-out their 21CN, they want to be the Sky of fixed networks i.e. use them to deliver the content and they take a big chunk for the customer charge for doing so).

The future’s bright – but only for BT.

Backgrounder on Local Loop Unbundling in the UK Pt 2

Steve Kennedy is an acknowledged expert in the telecoms and data networks field, so it was an obvious choice for us to ask him to write an overview of how other IP operators can compete with BT – by creating their own data network. To do this, they need to put their own equipment into the telephone exchanges that connect to peoples houses. That process is Local Loop Unbundling (LLU).

Over three days we’ll give you a full background in LLU in the UK.

Yesterdays piece gave an overview of LLU and which companies are players in the UK.

LLU Penetration
All the large operators are going into around 1,000 DLEs (those being the most densely populated), since there are only around 1,200 of them, all the operators are targeting the same DLEs and there’s a lot of overlap.

Backgrounder on Local Loop Unbundling in the UK Pt 2 Since the operators all want to get into the same exchanges, there’s overcrowding and BT have to install new hostel space (the space where operators can put their own equipment into) which causes delays. It can take more than 6 months from when an operator puts an order in to being granted access to an exchange.

LLU (un)Economics
When LLU was announced it was prohibitively expensive, mainly due to Ofcom (or Oftel as it was then) allowing BT to set the pricing models.

Over time the economics have become fairer to operators, with BT being forced to set-up BT Openreach which looks after the physical infrastructure. If they hadn’t formed Openreach, it’s likely Ofcom would have pushed for a split of BT.

Ofcom then made BT not reduce wholesale pricing for their broadband services to give LLU operators a chance to gain a foothold. BT would have to maintain their pricing until April 2007 or 1.5m unbundled lines, whichever came first.

In Dec 2006 there were 1,000,000 unbundled lines and last week Ofcom announced that 1,700,000 unbundled lines had been reached (there was no distinction between Option 2 and 4). BT Wholesale has over 9m broadband customers.

Also Carphone Warehouse (CPW) released their interim results showing they had 2.31m broadband customers, 700,000 utilising LLU.

So out of the 1.7m unbundled lines, CPW have .7m which means there’s 1m split between the rest (mainly the big players, Wanadoo, C&W, Easynet Pipex and Tiscali).

As a rough model that’s 1.7m lines, spread over 1,000 DLEs which makes 1,700 lines unbundled per DLE. There’s 6 big players which means around 280 customers per operator per exchange.

Backgrounder on Local Loop Unbundling in the UK Pt 2 Unfortunately the economics of LLU only work if there’s a lot of customers per exchange i.e. massive scale.

Now that the milestone of 1.5m unbundled lines has been reached, BT Wholesale will be allowed to reduce their pricing (which they’ve said they want to do) which will make the economics even worse.

To get the scale, further consolidation will occur which means fewer LLU operators in the future (Pipex has already put itself up for sale with CPW rumoured to be the front-runner for buying them). They need to do this in order to get the customer penetration per exchange.

The next and final section will cover the possibility of competition to BT and what could happen in the future

Images are courtesy of wb-internet and the BBC, respectively.

Backgrounder on Local Loop Unbundling in the UK

Over the next three days we’ll give you a full background in LLU in the UK.

Backgrounder on Local Loop Unbundling in the UK What is Local Loop Unbundling (LLU)?
LLU is the ability to put equipment into BT exchanges (know as DLEs – Digital Local Exchange) and take over the copper line into the premises.

There are two forms known as Option 2 (metallic path facility as BT call it) and Option 4 (shared metallic path facility).

Option 4 characteristics: –

Operator takes over the line and only offers broadband services (of course they can offer services on top of the basic connectivity).
BT retain control of voice services.
BT send out the “Blue Bill”, this includes line rental and voice traffic which means they can still market their services to the customer.

Option 2 characteristics: –

Operators takes over the line completely.
No BT blue bill.

Once the operator has put the equipment into the DLE, then they have to connect it back to their own network. BT can provide this using BES (Backhaul Extension Services) or the operator can use their own connectivity solution. Most operators don’t have the coverage to provide their own connectivity solutions.

DLEs
BT have around 5,600 DLEs across the UK (i.e. telephone exchanges) and these have customers connected to them. Around 1,200 are in densely populated areas, another 800 or so with medium populations and the rest in rural areas.

Backgrounder on Local Loop Unbundling in the UK Any operator wanting to offer broadband (and possibly voice) has to put their equipment in these DLEs. However there is a cost to unbundling an exchange (around 100,000 including backhaul) which means operators are only targeting the most densely populated ones.

LLU Operators
Operators who have unbundled exchanges are: –

Any operator with a “-” after has been acquired by another player.

* AOL (UK) Ltd – CPW
* Be Unlimited – O2
* Bulldog Communications Ltd – Users to Pipex, LLU C&W
* Cable and Wireless Ltd
* Computacenter PLC
* Easynet – Sky
* Eaton Power Solutions
* eXstream Networks Ltd
* Groestar Ltd
* Kingston Communications (Hull) Plc
* Lancaster University
* Leanwood Communications Limited
* Lumison
* Nestor Electronics Ltd
* Opal Telecom (CPW)
* Pipemedia Ltd
* Pipex Internet Ltd – who knows, up for sale
* Tiscali
* T-Mobile
* UKBB
* Unisys Ltd
* Updata Infrastructure UK Ltd
* Videonetworks Ltd – Tiscali
* Wanadoo
* WB-Internet Ltd
* Zen Internet Limited

Some of the smaller players are conducting trials and some are just offering private services (like Updata who offer connectivity solutions to councils etc).

Tomorrow, the penetration of LLU in the UK and the economics of it.

Vodafone And Orange 3G RAN Share: Examined

As has been mentioned on Digital-Lifestyles, Orange and Vodafone have entered into an agreement to share their 3G Radio Access Network (or RAN). We thought you’d appreciate some more depth … and who better to give it than Steve Kennedy, our telco guru.

Currently Vodafone have a bigger network than Orange, so Orange would gain more than Vodafone from the deal, but in future it means that new cell sites will be used by both operators.

The agreement could have covered 2G (GSM) too, but as Vodafone use 900MHz systems and Orange use different systems operating in the 1800MHz band, it just not possible. That said, it’s likely future technology would allow both sets of frequencies to operate within the same radio equipment.

There will still be interesting problems to sort out for 3G sharing, as Vodafone exclusively use equipment from Ericsson, while Orange use equipment from Nortel, Siemens, Nokia and Alcatel.

Once the network is in place, each network will be responsible for enabling their own network services and ensuring quality of service, etc. As competition for customers increases this is a sensible way for operators to reduce cost, share the infrastructure and compete on service. It’s a shame the fixed networks don’t take this view, as has been pointed out before, the LLU operators could join forces and build a joint LLU network and then compete on service. This might give them a larger network, which would be of a size and scale to compete with BT’s upcoming 21CN.

Why the rush to build?
With a 3G license comes obligations and one of these was to reach 80% of the population by the 1st Dec, 2007. Though the GSM network coverage hit that a while ago, 3G expansion has been slower with few customers really wanting 3G services so the operators have built 3G networks in densely populated areas where they can make revenue from those customers. That means big cities have been covered, but elsewhere 3G coverage is patchy to say the least.

Hutchinson 3G (or 3 the new entrant into the mobile world) has been rapidly building its customer base and building a network to match. In June 2004, Ofcom tried rules that 3 had SMP (significant market power) in the 3G world, which meant it would be regulated by Ofcom much in the same way BT is for fixed networks. The other 3G operators happily supported Ofcom in this view. 3 didn’t want the increased regulatory burden and disagreed with Ofcom’s ruling, so appealed to the Competition Appeal Tribunal. They won their appeal in November 2005. This was the first time any network has successfully appealed against a SMP designation.

3 wasn’t happy about having SMP forced upon it and therefore made noises to Ofcom about coverage obligations, which the other networks weren’t meeting. They’ve got 10 months to hit that 80% figure.

Though city centres might have a demand for 3G (for data services, no one cares about 3G voice – a voice call sounds the same whether it’s 3G or GSM), as you leave dense urban areas the appeal of 3G is less. Well maybe not less, but there are less people to use it and less of a reason for the networks to install 3G infrastructure and sites.

The cost of a 3G cell is probably not much different in terms of equipment from that of a 2G cell, one major difference is the amount of bandwidth needed for the cell, as data volumes are significantly higher (maybe 40Kb/s using GPRS data compared to maybe 2Mb/s for 3G, multiply that by 10 users and it’s 400Kb/s compared to 200Mb/s).

UK backhaul (i.e. the pipes used to connect cells) are expensive. The more rural the cell site is. the less chance there is that anyone (except maybe BT) has got any kind of high bandwidth connectivity. Therefore, the costs of the backhaul may well exceed that of the cell site itself.

Sharing makes economic sense
Orange and Vodafone have to hit that 80% figure or Ofcom can impose fines which could be significant. Therefore the build out of a shared new network makes economic sense. It’s half of what they’d each have to pay.

In this climate of everyone’s customers wanting everything for nothing, being able to reduce your build costs may well be the straw that doesn’t break the camel’s back.

Sky Broadband: Analysis

Sky Broadband Analysed Yesterday saw the press unveiling of Sky Broadband, showing the eventual absorption of EasyNet, the UK ISP that they 3).

If your reaction is, “Don’t Sky do satellite TV?,” you haven’t been paying much attention recently.

Sky’s offering is simple. Three different speeds of connection – 2Mb (Base) for no payment; 8Mb (Mid) for £5/month; and 16Mb (Max) for £10/month. Connection fees vary with Base at £40, Mid £20 and Max being free.

Each of the bundles include a wireless router and McAfee security software.

Sounds cheap? Well there’s a slight caveat to the ‘free’ service; you need to be a subscriber to their TV service.

Registration via their Web site or SkyActive has been available from noon today and the product will start selling from August.

sky broadband analyses Sky marketing have been taking their now-expected simplistic approach to the name of the product, with Base, Mid and Max. It’s genius like this that produced the name Sky+, the name that sold 100k+ PVRs to the UK public, when previously they didn’t understand what the hell it was.

How does it fare against the others?
The prices are considerably lower than most of the offerings in the UK, with an equivalent pay-for 2Mb connection from BT costing £18/month.

True, to qualify for these Sky Broadband services you do need to subscribe to Sky TV, but surprisingly at only the cheapest, £15/month package. This approach differs from what they’ve done for many of their other recent ‘hi-tech’ offerings like Sky By Broadband, Sky By Mobile, which required subscription to one of their ‘Premier’ packages.

The closest offering to ‘free’ broadband in the UK are two fold – Carphone Warehouse’s TalkTalk, and Orange, post merger with Wandadoo. TalkTalk requires an 18-month contract for a phone line with a rental of £20.99/month and Orange requires a mobile phone bill of at least £30/month.

Installation
As per most UK broadband offerings, Sky is expecting most of their installations to be done by the customer, after they’ve received their bits and pieces through the post. The wireless router (which looks like a 3Com unit), sounds self configuring, with the subscriber just needing to load software on their suitably-equipped PC, or …. shock/horror, Macintosh.

If people feel they’re not up to the job, the ever-helpful Sky will send an engineer around to your house to install it all for £50, unless you’re a Sky Max subscriber, in which case it will be free.

This is a big differentiator with the Sky offering. This isn’t offered by other ISPs – it’s simply not economic to do it. It’s also quite a bargain. Depending on the part of the country you live in, you would normally be hard pushed to get someone to come around to your house to install and set up your DSL and a wireless network for that sort of money.

One thing that Sky does excel at, is customer service, and they clearly want this to go as smoothly as possible.

Coverage
These packages aren’t available all over the UK, as Sky Broadband’s reach is limited to the number of exchanges that have been unbundled by EasyNet, as was. Sky are quoting coverage at 28% of the household of the UK, with the high speed (16Mb/s) service only available to an estimates half of these, giving coverage of about 14%.

With their promise to invest around £400/m over the next three years, Sky will be increasing coverage with the stated aim being 70% of UK households by 2007.

Those who fall outside these have to make do with what they call Sky Connect, which is limited to an 8Mb/s service at £17/month.

Analysis
Sky are doing a smart thing here – effectively getting their customers to install another means of Sky delivering content into their homes.

No-one at Sky would be drawn to talk about any firm plans to deliver video content over the broadband connections, but clearly that will be the next move. They can pre-load films, while the connection isn’t being used by the family.

That explains one of the reasons they’re doing it, but why else?

Sky Broadband Analysed Since James Murdoch took over running Sky, its stated ambition has been 10 million subscribers by 2010, but as we get closer to that, it’s getting hard to convert over those naughty-non-subscribers.

To build toward 10m, Sky really need to keep hold of their current subscribers, and some find they don’t need satellite TV anymore. Bringing them in and locking them into a broadband service is a great way of doing it.

The other thing they need to bring in, is new subscribers and offering potential subscribers incredibly cheap broadband is a pretty good way of doing it.

Other things that Sky are doing is getting their subscribers more closely linked in, or locked in to their service. It’s interesting to see that Sky will be providing a personalised portal of their own, providing photo management and address book. If you’ve ever tried to extract yourself from a photo sharing service – and escape with your photo’s – you’ll know it’s not easy.

Other bits that will be given over are as the previous Sky By Broadband offerings of film, sports and news clips. Oh and, big wow, you’ll also be able to get an @sky.com email address (wonder if [email protected] has gone already?)

Sky will really put the cat among the pigeons with this one. It’s a very keen price, that will hopefully start bringing down the price of broadband for the UK.

Sky Broadband

Sky Broadband – From Free!

Sky Releases Free Broadband Service As expected, Sky has released details of their new “free” broadband promotion, which offers their 2Mb Base package for nowt.

[Read our analysis of Sky Broadband news]

But skinflints looking for a free feast of broadband take note: you only get the service if you’re already an existing SkyDigital network customer, and it comes with the additional sting of a £40 activation fee.

I’d rather jack
Punters who don’t know their phone jack from their Monterey Jack can also expected to be thwacked around the head with the extra optional £50 fee to get their home install sorted by Sky.

Users of the free broadband deal will find their downloading pleasure limited to a 2GB monthly usage cap, although they can upgrade to the ‘MID’ package, offering up to 8Mbps on a 40GB data cap for a fiver a month, with a lower £20 activation fee.

There’s also a ‘MAX’ option, which gives ‘unlimited’ downloading at a speedy 16Mbps with no activation or home install costs, all for a tenner a month.

Sky Releases Free Broadband Service For users out of a Sky network area, there’s the pricey ‘Connect’ option which offers up to 8Mbs connectivity, 40GB usage cap, £40 activation fee and £50 home install for a distinctly upmarket £17 per month.

All the offers include a free wireless Sky broadband box.

Growing the network
Easynet (owned by Sky) now owns a LLU network covering roughly 28% of UK homes, based primarily inside urban/city areas, with the company expecting to reach 70% coverage by the start of 2008.

Sky reckons that its broadband service – currently swallowing up £400m of operating profits and costing £250m in capital expenditure – will start to hit the break-even point sometime between 2009 and 2010.

Sky Releases Free Broadband Service 30 per cent of Sky customers on broadband
The company also said that it expects 30 percent of its approximately 8 million customers to be signed up to its new broadband service by 2010.

Sky’s chief executive James Murdoch claimed that many of his rivals had been overcharging their customers, “A lot of incumbent players have been charging a lot of money for a long time for not a lot. It could be uncomfortable for them.”

“We can see huge growth in this market from a revenue perspective and for customer loyalty. We can also grow market share,” he added.

Jon Florsheim, managing director of Sky’s customer division, was ready to go even further, insisting that research showed that Sky would pick up new business from competitors.

“The bloodbath is not going to be on our front lawn,” he added, in his best Clint Eastwood voice.

It wasn’t all joy and happiness in the City after their announcement though, with Sky’s shares slumping 3.9% after the announcement of the new broadband service.

Sky Broadband

Tesco VoIP: Further Pressure on BT

BT’s dominance of the UK home telephone is coming under fresh pressure as the phone call market becomes the most liberal in Europe. Previously, their pricing levels have had to be agreed in advance with the UK regulator Ofcom, but with it understood that this is going to be lifted soon, price cuts are expected.

In a sign that the gloves are well and truly off, Tesco has unleashed a price-busting Voice over IP (VoIP) package designed to lure customers from the incumbent operator.

It’s further proof (if any were needed) that VoIP continues to shake things up in the voice phone market.

The Tesco package will be marketed at just under £20 and will include a ‘normal’ phone handset that plugs in to a broadband-enabled PC’s USB port, and the software need to drive it. Calls will be made at a fraction of the current cost.

Many other companies continue to pressure BT. Talk-Talk, the landline phone service by The Carphone Warehouse, has already consolidated two of the traditional landline competitors and it’s likely that Sky would also welcome call revenue via its recent Easynet acquisition.

Pressure is also coming from outside the UK. US giant AOL has BT in its sights with a programme to exploit the Local Loop Unbundling (LLU) agreement BT made with Ofcom, which permits AOL and others to house high tech Voice over IP equipment at exchanges throughout the country.

Tesco VoIP: Further Pressure on BT Technical-savvy Skype callers have for a long time taken advantage of VoIP calling to obtain free or cheap calls.

The danger for BT is that the trickle of the public away from its traditional services over recent years could become a torrent, as more content, including broadband TV starts to be delivered by IP, BT could lose their in-built advantage as the default delivery gateway to UK homes.

Is all of this price cutting good news for British consumers? Well, certainly lower call prices will benefit the majority of UK call makers, but there is a question mark in the long run. It could bring mixed blessings for the UK’s telecoms infrastructure as BT tries to cut costs and investment to ensure that its institutional shareholders remain happy as they operate on slimmer margins.

Homehoice Appoint CSFB To Fund National UK Expansion

Homehoice Appoint CSFB To Fund National UK Expansion This morning, Homechoice, the currently London-focused DSL-based VOD announced that they had appointed CSFB (Credit Suisse First Boston, as was) to raise new capital for their expansion around the UK.

Starting 2006, Homechoice plan to expand the number of homes they cover from the current 2.4m homes to over 10m. Homechoice state that this footprint is approaching the same size as that of the combined UK cable companies, which they’re close with, as ntl + Telewest actually have just over 12.6m.

New subscriber figures have also been announced by Homechoice, revealing 34,000, more than double the 15,000 previously disclosed and widely quoted this week when rurmours of Sky being interested buying them were circulating.

Roger Lynch pointed out, “We’re now the fastest growing pay TV service relative to our footprint ,” which, while it’s encouraging, would be expected given they started at such a small number of subscribers.

Homehoice Appoint CSFB To Fund National UK Expansion Their newly-announced ARPU (Average Revenue Per User) figures are impressive at £430, being considerably higher than Sky’s £384 (announced in 3 August 2005), but lower than Telewest’s £538 and ntl’s £477 (reported to ofcom, Q2 2005).

Comment
We find it slightly confusing that Homechoice is headlining this news release with their national expansion, which has been a long-stated aim for them and is therefore not news, and not CSFB’s appointment. They’re also putting out a whole lot of figures saying how well they’re doing. We’re not clear if this down to them wanting to make the most of the resent press interested the Sky rurmours have brought or a way of trying to cover that they’re need more money, or just genuine excitement of working the CSFB.

On the financing of the next stage of the roll-out, Lynch explained, “We’ve also reached the stage in our corporate development when we believe it’s right to raise capital from new investors. Hence our decision to appoint CSFB.

This could be read as saying that the current majority backer, Digital Explosion, which is owned by Chris Larsons, a Microsoft co-founder, doesn’t look like it’s prepared to fund the next stage. When we asked Homechoice, their spokesperson said Digital Explosion “Remained committed,” one further probing they wouldn’t be drawn on how much more money, if any they were prepared to invest.

We really hope that Homechoice is successful, we’ve always have been, and continue to be supporters of theirs – for their vision, their progress and their sheer bloody-minded determination to keep going.

Homechoice

Sky Says Easynet Purchase “Solves All Problems”

Sky Says Easynet Purchase Solves All Problems BSkyB’s Director of Product Management, Gerry O’Sullivan couldn’t help sounding smug as he took centre stage at The Connected Home conference in London today.

“Those of you who read the papers may have noticed we bought a small Internet company last Friday,” he announced. “To have a combination of satellite distribution and broadband connectivity solves all problems”.

O’Sullivan’s presentation focused on Sky+ and stated the need for a “whole home solution” but he was keen to distance himself from existing IP-based offerings such as the Windows Media Player.

Sky Says Easynet Purchase Solves All Problems While Microsoft’s Cynthia Crossley and Telewest’s Mark Horley nodded collaboratively to Merlin Kister of Intel’s assertion that “We mustn’t be close minded and pick a winner. It’s important for all players to work together,” O’Sullivan looked disinterested.

“I’m a fan of Media Player – but my mum doesn’t want a reminder to renew her anti-virus subscription while she’s watching Coronation Street,” he said.

And, in response to an audience show of hands revealing nearly all had regular problems with programme crashes on their PCs, O’Sullivan added:

Sky Says Easynet Purchase Solves All Problems “There’s zero tolerance (among our customers) for that sort of unreliability and pain…we can only roll out products that you switch on and they work.”

And BSkyB has the money and ambition to keep turning out products it thinks consumers may need – the five day old Sky Gnome for example, enabling you to listen to satellite radio in the garden, or the new movies over IP service, Sky By Broadband – due to launch in the next two weeks.

The third generation Sky+ boxes have 160GB of space – only half are visible to the consumer – the other 80GB of disc space is for BSkyB to keep as a store for future ‘on demand’ programming, O’Sullivan revealed.

Sky Says Easynet Purchase Solves All Problems Horley mentioned that Telewest was launching its own 160GB PVR in early 2006, with the WHOLE disc available for recording “as we already offer video on demand”.

Sky can’t support true VOD – it’s satellite distribution network has limited bandwidth and lacks an intrinsic return path – but do consumers care?

With Sky+ proving a virtually churn-free proposition (apparently 90 per cent of viewers say they’re very satisfied), Easynet on board and plenty of money in its pocket, O’Sullivan can’t help but smile – looks like BSkyB is onto a winner.

The Connected Home 05

Sky/Easynet Purchase: Analysis

Possible Impact Of Sky Buying EasyNet As we reported last week, Easynet has been bought by Sky – as long as they get shareholder approval, but since Sky have offered a premium on Easynet’s shares, this should be a done deal.

This is the first broadcaster (in the UK) to take control of the telecom’s infrastructure required to deliver a triple-play of voice, Internet and video, though it’s likely Sky will use the broadband piece to complement its satellite delivery channel. This does give them the much need backchannel that has been elusive so far (requiring dial-up to access SkyActive and other services).

This could be a major blow for THUS who provide telecoms services for Sky as well as hosting various services (THUS developed parts of the WapTV service with Sky). Sky accounts for around £30m of THUS’s revenue (about 10% of their total) which could potentially go to Easynet which would make a huge dent in THUS’s revenue figures, though a lot of it is very low margin.However it might put THUS in a poor financial situation when viewed by the city.

Possible Impact Of Sky Buying EasyNet Even though Sky are buying into LLU, Easynet only cover around 250 exchanges and currently all the voice goes to BT (Easynet use the shared metallic path LLU option), while Sky are likely to want to take the phone service as well (they already have a SkyTalk package using CPS provided by THUS). Sky will need to invest to make this a reality as well as increasing Easynet’s coverage. They have said they want to go into around 1000 exchanges, so that’s a build out of around 750 – which won’t be cheap (probably another £100m’ish at least).

For Sky that may be enough as it will cover all major city centres and that’s a big plus for Sky who estimate they can’t reach 20% of their potential audience due to issues with coverage (i.e. no satellite line of site due to buildings in the way, or no way to mount a dish, multi-tennant buildings etc). LLU will give them the means to reaching these people.

It still begs the issue of what’s going to happen when BT roll-out their 21CN and attack all 5,600 local exchanges and also offer a triple-play, but at least Sky will have a lead on them and already have the content ready to roll. BT are likely to be the winners longer term, but at least Sky may have a fighting chance in urban areas.

Sky Buys Easynet If all the LLU players aggregated infrastructure and competed on services, they could build a 21CN of their own now. LLU competition is going to be fiercely competitive with Wanadoo, AOL, Sky and even Be offering a triple-play – all competing for the same customers. – as well as BT (who will have nationwide coverage) and not ignoring NTL/Telewest who are also going into LLU.

The LLU operators have got maybe a 2 year window before BT get their act together, if they don’t do something co-operative now, in 2 years a lot of them will just be passing memories.

Easynet
Sky