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BT's Wild Bet on TV

Commenting on the launch of BT Sport next month, Dr Ronald Klingebiel, Assistant Professor of Strategy at WBS, University of Warwick wonders what this all means for the telecommunications industry:

"Premier League fans will find their viewing experience complicated by the arrival of BT Sport this season. There has been much public scrutiny of who will screen which matches and for how much. On the sidelines of the media frenzy, however, investors will be scratching their heads over the lengths to which telecommunication companies will go to eke out a living from broadband provisioning.

Carriers throughout Europe struggle to monetise high-speed Internet networks. Short technology cycles and lower customer switching costs make this difficult. But most of all, it is convergence that threatens traditional business models. Vodafone’s recent Cable & Wireless deal is an example of mobile operators adding fixed-line provisioning to their portfolio. Attacking BT’s turf from yet another angle is BSkyB, which began offering Internet subscriptions when it saw pay-TV customer numbers stagnate. The company now competes with BT in both arenas, and is mooted to be contemplating a further drop in broadband prices. BT’s margins are thin enough already.

Technology has developed such that telephony, Internet, and TV will all soon be delivered the same way, through a device that connects wirelessly to a local base station or modem, from which traffic is routed over fibre networks. Consumers can get everything out of one hand and do not care whether their provider has its roots in broadband, cable TV, or mobile. They won’t feel the difference. This signals a differentiation problem for the enlarged set of direct competitors.

Hence BT’s earlier move into TV-provisioning, and now into proprietary programming. As it stands, the company plans to offer its BT TV subscribers free access to BT Sport. Rather than to generate new income, the new programming is to make BT’s multi-play broadband package stand out from the rest. In a way, the company is following a broader trend of offering ever more for the same price.

The strategic logic is sound in that BT’s exclusive football coverage may convince Virgin or BSkyB customers to switch providers. The hitch is that Ofcom is unlikely to allow discriminatory bundling. Fittingly, BT has only recently complained to Ofcom that BSkyB will not allow wholesale supply of Sky Sports 1 and 2 on the BT platform. Ofcom is likely to rule in BT’s favour, just as it is poised to force BT to allow BSkyB to deliver BT Sport. So much for exclusivity, and the chances of differentiating the broadband package."

Dr Klingebiel is available for press comment and can be contacted by email,