Photographer: Luke MacGregor/Bloomberg

Sky Counters BT Soccer Strike With Wildcard U.K. Mobile Service

  • Pay-TV provider could surprise with broadband-like success
  • Analyst estimates of Sky wireless share range from 1% to 10%

Sky Plc is about to jump into the U.K. wireless market, betting that even as a latecomer it can pry customers away from the four established competitors by harnessing its powerful entertainment brand and millions of existing subscribers.

Prospects for Sky’s mobile offer remain hard to pin down for analysts. Their forecasts for the company’s share of the 15.2 billion-pound ($18.9 billion) U.K. market range from as little as 1 percent to 10 percent, which would bring it close to CK Hutchison Holdings Ltd.’s Three U.K., now the No. 4 player.

The outlook for Sky’s offer remains clouded by a lack of details, including pricing. Guy Peddy, an analyst at Macquarie Bank Ltd. in London, originally estimated Sky could capture about 2 million customers by mid-2021. He’s raised that figure by more than 50 percent to 3.12 million, saying this week in a report that the opportunity is bigger than he thought and the offer is more sophisticated. “Wireless risks for the existing operators are understated,” he wrote.

The type of customer Sky attracts is as important as the number. That’s because its biggest rival, BT Group Plc, has been busy establishing itself on Sky’s home turf in pay-TV. The former U.K. phone monopoly this year expanded its slate of Premier League soccer matches, long a Sky stronghold, and acquired mobile operator EE. That gave it a “quad-play” lineup of fixed and mobile phones, broadband and television. By adding a mobile offering, Sky has a chance to retaliate.

‘Substantial’ Potential

“The fact that they will be entering the quad-play space after BT/EE means that competition for similar customers could be intense by the time they come to market,” Ameet Patel, an analyst at Northern Trust Securities LLP in London, said in an e-mail. EE and Sky will be fighting for a broadly similar subscriber base of “higher-value, more data-hungry users,” Patel said.

Sky says it sees “substantial” potential for the cellular service. What little it has revealed suggests that the company, whose biggest investor is Rupert Murdoch’s 21st Century Fox Inc., is confident it can poach mobile customers from its rivals by bundling services across platforms. Existing Sky customers who indicate their interest in the mobile product online are told it will be “the smart network for your smart phone.”

Sky’s experience delivering content to mobile platforms means the new service is a natural extension, Sky Chief Executive Officer Jeremy Darroch said last week at an investor conference in Barcelona. Sky will first focus on signing up its existing customers, who currently get their mobile service from a range of providers, he said.

“It’s a market where I think we’ve got the right skills to be successful,” Darroch said. Sky’s success with broadband and its high-definition TV service show the company is good at marketing new products, he said. “Our ability to upsell that scale is very, very strong.”

EE’s Share

EE had a 29 percent share of U.K. retail mobile subscriptions at the end of 2015, according to industry watchdog Ofcom. It was followed by Telefonica SA’s O2 with 27 percent, Vodafone Group Plc with 19 percent and Three with 11 percent.

Representatives for EE, Three and the Vodafone declined to comment. A Telefonica spokesman said the company will benefit from the traffic generated by Sky because the pay-TV provider is buying space on O2’s network for its mobile offering.

Sky built its pay-TV business on ownership of premium programming like top-flight soccer, rather than discounting, so analysts don’t expect it to try to undercut rivals on price in pursuit of volume. Still, its entry into an already crowded U.K. mobile market will intensify competition.

Some analysts underestimated the growth of Sky’s broadband business. After more than a decade of investments, including the acquisition of Telefonica’s U.K. fixed-line business, Sky has become the second-largest internet provider in the U.K. after BT. Its market share rose to 23 percent in 2015 from 15 percent in 2010, according to Ofcom.

BT mobile subscribers that don’t get broadband from the carrier may already pay for Sky services and may be the most likely candidates for switching to its cellular offering, said Allan Nichols, an analyst at Morningstar Inc. in Amsterdam.

Broadband Success

“They’ve been way more successful with their broadband than I ever thought they would,” he said.

Research suggests two-thirds of Sky customers would consider the company’s mobile offering, Stephen van Rooyen, chief executive officer of the U.K. and Ireland business, said at a capital markets day last month. They’ve been able to register since October.

“We’ve long had our eyes on the size of the prize,” he said. “The mobile market is huge.”

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