Pipex - Wimax - the next telecoms revolution

Restoring good name of 'c' word
Dan Sabbagh: Analysis
Convergence got a bad name because the word was overused in the previous internet boom, but with BT’s long-anticipated arrival as a pay-television broadcaster, the “c” word is justified. Telecoms and television are fast coming together. Now BT and BSkyB — 39.1 per cent owned by News Corporation, parent company of The Times — appear to compete on all fronts, from telephones to internet and pay television — joining the cable company NTL, which has long provided all three.

It is tempting to ask who wins, but the reality is more complex. The market is large enough to ensure that these three companies will dominate paid communications services into the home — and there is less direct competition between BT, NTL and Sky than might be supposed. Fixed-telecoms revenues in the UK are worth £10 billion, home internet services £3.4 billion and rising and pay television amounts to another £4 billion.

The biggest threat is to the remaining standalone broadband players, as bundled broadband and television are coming as standard. Time Warner has given up on AOL UK, sale rumours surround Tiscali and Pipex, leaving only Carphone Warehouse standing and moving forward. The only other category of company still providing broadband are mobile operators, led by Orange — and, in reality, their belief that people want to buy broandband and mobile at once is little more than a punt.

As for Sky and NTL, BT’s pitch is aimed at the half of the UK population that does not want to pay much for television in the digital era. Freeview will remain powerful because it is backed by the free-to-air television lobby — certainly by the BBC and Channel 4, and probably by ITV.

Sky and NTL, meanwhile, aim to cater for the upmarket technophiles, pressing on with initiatives such as high definition and, of course, the full range of channels, of which the most important is Sky’s sports offering, which is also available on NTL’s service. BT, of course, places great emphasis on its sports partnership with Setanta, although the upstart sports broadcaster always planned to make itself available on Freeview and it provides only a third of all Premiership games.

For Sky and NTL, one of the theories behind providing broadband is that it is designed to help to curb customer defections, the problem that plagues all pay operators. The principle reason for giving up pay television is that subscribers believe that they do not watch it enough. Having a broadband connection bundled in makes that a bit tougher. Although NTL has lost customers for the past two quarters and Sky has been going at broadband for only a short period, the number of customers willing to switch directly to BT is likely to be more modest than the number of Freeview homes willing to go for a bit extra.

Once a start-up could become an internet service provider. Only the companies with the most capital can afford to compete to supply the information pipe in and out of the home. That is likely to lead to a noisy, lumbering battle, in which the rest struggle to avoid being squashed.