KEY POINTS:
Rupert Murdoch's foray into the British broadband market seems to be progressing nicely, with his pay TV operator BSkyB having signed up 250,000 new customers in the last three months.
The British operation has used local loop unbundling provisions imposed on British Telecom to put its own equipment in BT's exchanges and provide high-speed internet services over the incumbent's copper lines.
Sky has enabled 1,150 exchanges giving it 65 per cent coverage of the country.On the basis of that, Sky now has 716,000 broadband subscribers - BT and Virgin each have more than three million.
How has Sky made such inroads against better established players? It has a massive pay TV user base it can leverage by offering competitive broadband deals. That's exactly what it has done to great effect.
An entry-level broadband deal from Sky gives you a 2Mbps (megabit per second) connection with a 2GB (gigabyte) monthly cap.
It costs 40 ($NZ104)to sign up, but there are no monthly fees after that.
Effectively, it's free on an ongoing basis, though nothing is really free - Sky's other services subsidise it.
A service offering speeds up to 16Mbps with no monthly cap (just a fair usage policy), costs 10 a month.
Of course, you have to be a Sky subscriber to sign up. All up, a good example of a player using local loop unbundling to bump up the average revenue extracted from its subscribers and take market share from other operators.
So what of Sky in New Zealand? The success of BSkyB's foray into broadband suggests the operator must be looking at repeating the formula here, where Sky has an even greater advantage.
It has a virtual monopoly on pay TV services and, after Telecom, has the second-biggest subscriber base in the country with nearly 700,000 customers. Some time next year local loop unbundling will be underway here too.
Sky bundles its pay TV deals with phone and internet services from both Telecom and TelstraClear.
But as BSkyB has found in the UK, the economics of the proposition are far better when it uses unbundling to go to market with broadband itself. I'd expect Sky to follow its UK parent's model, delving into local loop unbundling in the next couple of years, perhaps picking up an internet provider to give it some capability in the internet space.
If the types of deals offered in the UK are repeated here, that will be a good thing for competition in the broadband market.
