Pipex Communications Discussion

BSkyB buys Easynet for £211 million

JOHN BOWKER
DEPUTY CITY EDITOR


JAMES Murdoch yesterday made his most aggressive move as BSkyB chief executive as he snapped up broadband group Easynet - a deal that piles extra pressure on Glasgow telecoms group Thus.

The satellite TV giant paid £211 million for the internet group - far more than the market expected him to pay. The 175p-a-share bid was at 81 per cent higher than Easynet's share price a week ago, and 38 per cent above yesterday's opening price of 127p, which was stuffed with takeover speculation.


The deal will make £6.7 million for Easynet directors, and sees BSkyB expand into broadband for the first time. It will now be able to offer so-called "triple play" services of phone calls, internet and TV to its eight million customers, and also paves the way into two million new homes that do not receive a Sky signal.

NTL and Telewest, the cable companies that announced merger plans at the beginning of the month, had previously enjoyed a niche in triple play deals. Sam Morton, a telecoms analyst at Dresdner Kleinwort Wasserstein (DKW), said: "Murdoch wants to match what they can do - but all over the UK instead of just where we have cable."

The deal will also put pressure on BT, the UK's biggest supplier of broadband.

Thus is the current broadband supplier to BSkyB, but is now odds on to lose the deal. The contract is worth about £35 million a year to the Glasgow group - about 10 per cent of its turnover.

Murdoch told analysts that Carrier Pre- Select - the service provided by Thus - was "clearly an interim step" for the company, and that he preferred to look to Voice-over-internet-protocol technology. The news comes just a week after it emerged that Thus may lose its only other similar contract - with Tele2. A double loss would amount to 20 per cent of annual revenues at Thus, but one observer suggested the group would be untroubled by the setback, as the business is low margin.

Chief executive Bill Allan would not comment on the contracts, but did say that he was encouraged by the BSkyB acquisition of Easynet. "That's one less competitor we have to worry about," he said.

Murdoch indicated that he had not made his final acquisition, which will spread fear among his rivals. Analysts said the most obvious next target would be Pipex, which like Easynet has access to BT exchanges. It has 255,000 customers and is valued at about £200m. BSkyB has available cash after raising £1 billion through a series of bond issues. There is a small chance it could bid for Thus, but analysts suggested it was unlikely.

Easynet will give BSkyB a ready presence in the fast-growing UK broadband market, which nearly doubled to 8.1 million in the year to the end of June.

Murdoch said: "About 47 per cent of Sky customers currently have broadband. Almost the whole balance will be making a decision on a broadband provider over the next few years. So the opportunity for us to drive a residential broadband product to our customers is very, very large."

Analysts said the deal had sound logic. "It brings into the company managerial expertise and an initial physical footprint in the broadband marketplace," said Investec Securities analyst Malcolm Morgan.

Easynet has been investing heavily in local loop unbundling by placing its own equipment in BT Group's local exchanges - a process that will enable it to sell telecoms and internet services directly to UK homes without depending on BT.

Murdoch said Easynet had already unbundled 232 BT exchanges, and planned to take that to more than 1,000, which would give it access to 75 per cent of UK homes.

BSkyB shares closed down 3.5p at 515p.