itvt

BSkyB, which recently revealed plans to raise £1 billion via a bond issue, has reached an agreement to acquire UK ISP, Easynet, for £211 million in cash, giving it a broadband pipe that will allow it to stay competitive with cable and IPTV providers, by offering such services as VOD, as well as the data and voice elements of the so-called "triple-play" service offering. (Note: cable providers, ntl and Telewest–which earlier this month announced plans to merge–already offer VOD, data and voice services. The UK’s incumbent telco, BT, meanwhile, which already offers voice and data services, will shortly launch a VOD service.)

BSkyB has long been expected to purchase a broadband provider, having made no secret of its belief that broadband is key to its future: in a recent speech at the Royal Television Society’s Cambridge Convention, for example, the company’s COO, Richard Freudenstein, confirmed that it will eventually move to a hybrid distribution model, under which it will use broadband connections to its set-top boxes to offer VOD and other services: "New Ethernet connections will allow us to deliver services such as VOD over a broadband pipe, as well as over satellite," he told attendees. The company has already announced plans for a broadband VOD service that will deliver content from Sky Movies and Sky Sports to PC’s and laptops, and, in the presentation to analysts that followed its most recent earnings announcements, CEO James Murdoch stated that the company plans to eventually add Ethernet connectivity to all its set-tops.

Easynet’s broadband network currently reaches around 18% of UK households, giving it a footprint equivalent to that of Telewest. Its equipment is installed in 232 BT local exchanges; however, BSkyB says that it plans to spend around £70 million on increasing that number to 1,000 exchanges–which would result in its broadband network passing around 75% of UK households. (Note: BSkyB’s satellite TV service is currently inaccessible to around 2 million UK households, so the company will presumably focus its broadband network expansion networks on the areas currently beyond the reach of its service.)

The purchase price of 175 pence per Easynet share appears to be quite generous, representing a premium of approximately 81% over the closing price of Easynet shares on October 14th, the last business day prior to the offer period. Easynet’s directors are unanimously recommending that the company’s shareholders accept the offer: according to Sky, to date it has received "irrevocable undertakings" and a letter of intent to accept the offer from shareholders that collectively control 21.8% of Easynet’s issued share capital. The deal will also see BSkyB retaining Easynet’s current management team. "Today’s offer reflects the exciting opportunities that now exist to combine quality entertainment with significant high-speed connections," BSkyB CEO, James Murdoch, said in a prepared statement. "Entertainment is at the core of Sky’s success. Easynet’s innovative network and technological expertise perfectly complement Sky’s strengths in programming and in making technologies easy to use. We see value for families in moving well beyond just another triple play to offer a new level of connected entertainment and communications services."

In a press release announcing the acquisition, BSkyB enumerated what it sees as the benefits of the acquisition: "an established presence in UK broadband; a leading position in Local Loop Unbundling in the UK with 232 local exchanges unbundled; managerial and technical expertise to expand this local infrastructure through the unbundling of additional exchanges; ownership of key parts of a national network, giving it control over the quality and availability of services to customers and the ability to offer differentiated and innovative products; an attractive source of new revenues and new customers for BSkyB as a result of involvement in a fast growing segment of the UK communications sector. The number of UK broadband connections increased from approximately 4.4 million to 8.1 million, an increase of 86 percent., in the twelve months to 30 June 2005, and is projected to continue to grow further in the future; the opportunity to build on its nearly 8 million DTH subscriber relationships."

There had been some speculation that BSkyB would attempt to purchase Video Networks, the company behind the VOD-enabled triple-play service, HomeChoice. In conversations with analysts that followed the announcement of the Easynet acquisition, BSkyB CEO, Murdoch, conceded that the company may make additional purchases in the broadband space: "In a marketplace changing as rapidly as this, we are keeping all our options open," he said.

Click http://www.itvt.com to subscribe to our free email newsletter, which contains all the news stories you see on this Web site, and additional breaking news and scoops, in-depth features, interviews, and other exclusive content you will not read anywhere else.