Webster's latest article in The Oldie - July 2013

BT vs BSkyB - a fight to the death...

July 2013

What the internet does best is to allow us to send anything in digital form over gigantic distances as close to instantly as makes very little difference.

This makes it ideal for transmitting television, which is entirely digital these days, but it has set an electronic cat very firmly amongst the commercial pigeons. 

There’s big money in television, and where there’s big money, big arguments soon follow.  There’s a cracker of a battle going on between BSkyB, 40 per cent owned by Rupert Murdoch, and his corporate antithesis, the once state-owned behemoth that is BT. The entertaining part is that Murdoch has, once again, threatened a self-important bunch of vested interests and stirred up an overcharging industry.  Whatever you think of him, you can’t but admire his appetite for a fight, especially as he undoubtedly qualifies as a genuine oldie these days.

It’s all because BT owns the means of delivering broadband (the copper wires, telephone exchanges and so forth).  To counter this monopoly, the law obliges BT to make the infrastructure available to other broadband providers.  Despite this, BT remains the biggest supplier of broadband – but its position is under threat.  From a standing start a few years ago, BSkyB now has over four million broadband customers.

It’s Sky’s television service that has been winning us over.  BSkyB has been selling TV to us through satellite dishes for years, but transmitting TV over the internet makes all of us its potential customers, without having to have a dish. 

Television is just the bait – the real profits come from providing broadband, so BSkyB has made it especially attractive to buy its triple TV/phone/broadband package, which has frightened BT. About half of BSkyB’s television customers still buy their broadband from BT; if Murdoch did no more than tempt them to move over to BSkyB, it would cost BT over £700m a year in income, with minimal reduction in its overheads.

BT has reacted by starting its own TV service (BT Sport) and has spent £730m on sporting rights.  The original plan was for BT to pay BSkyB for access to its programmes as well, and re-broadcast BSkyB with BT Sport on BT broadband.  That way BT would be the one-stop shop for all sport on TV, and since BT broadband would be needed to watch it, it would clean up.

But BSkyB went to law, and the courts ruled that BSkyB need not sell BT anything if it doesn’t want to – and it certainly doesn’t.

It’s embarrassing for the BT bosses who have spent probably £1bn but have only managed to end up with some relatively modest, but very expensive TV sports rights that they don’t really need.

So in what looks like a desperate move, BT has decided to write off the many millions already spent on sports rights and simply give its TV service away to BT Broadband users for nothing.

Remember that it’s the broadband contract that both companies really want.  BT must hope that giving its TV away will stop its broadband customers moving to BSkyB.  This is a fight to the death; BSkyB wants to reduce BT to a provider of telephone poles.  And who bets against Murdoch in such matters?  Taking him on at his own game is usually a mug’s game.