Sky tackles Internet with charge on Ihug

By Keith Newman

Sky TV may be about to deliver fast Internet access and interactive services, including home shopping, to its customers earlier than planned.

The Business Herald understands Sky is about to buy Internet service provider Ihug, also known as The Internet Group.

Sky had previous said it needed all its satellite space to get its digital TV channels to customers and wasn't likely to offer interactivity until late this year or possibly next.

The Ihug deal, which is expected to be signed off today, will give the satellite-based pay TV company control of an entrepreneurial family firm which now has about 75,000 customers across Australia and New Zealand. The company has points of presence in Auckland, Wellington and Christchurch and provides Internet services to around 30,000 Australians in Sydney, Melbourne and Brisbane.

Ihug director Tim Wood said earlier this week he was keen to link up with a company which had the infrastructure to deliver its fast Internet service and TV programming to the rest of the country. Sky launched a 30 channel satellite-based digital TV service to new subscribers late last year. Sky's largest shareholder is Independent Newspapers - part of Rupert Murdoch's media empire - with 41.1 per cent. Television New Zealand has 12.9 per cent.

Ihug has been looking for investment partners for some months now to get behind plans for a national roll-out of a network which can deliver high-speed Internet access and television.

The company came up with its own mix and match of PC and TV technology recently and is currently providing nine channels to 50 subscribers in Auckland. Plans to take the combination of services nation-wide were dependent on finding the right partners and finance. In Sky, it is likely to have found both.

Ihug is several months behind in its plans to launch its Starnet TV and Internet service to a broader audience.

One major issue will be whether the set top boxes used by Sky are compatible with those Ihug is planning to distribute and what level of commonality will emerge, if any, in the programming between Sky and Ihug.

Ihug also has an interconnection agreement with Telecom and in March began offering a cheap international telephone connection which uses the Internet. "We thought we'd get about 5000 customers by the end of the year but we did that in just over a month," said Mr Wood.

Sky shares closed up 19c at 312c yesterday on a volume of 739,000.