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July 29, 2015

Sky results raise calls for Vodafone buy

Broadband a growth area in strong financial results.

By Alexander Sword

Sky has closed the full-year ending 30 June 2015 with £11.283 billion in revenue and 5 percent group revenue growth.

The group reported an 18 percent increase in operating profit, propelled by 973,000 customer additions and 4.6 million paid-for subscription products.

The company showed a strong performance in the fixed line market, with broadband additions of 96,000 in the UK and Ireland. This represented a 92 percent year-on-year increase.

In addition, in the same market, Quarterly TV growth increased by 49 percent to 113,000. Sky Store, AdSmart and Sky Vision were all up 122 percent.

Total product growth in Germany and Austria for the year was 969,000, while in Italy Sky held its customer base stable at 4.7 million and added 387,000 paid-for products.

The strong performance in Sky’s broadband and Pay-TV services again raised calls for a merger from analysts.

Paolo Pescatore, Director of Multiplay and Video at CCS Insight, commented: "We still strongly believe that strategically Vodafone and Sky would make the perfect fit, as their assets would strongly complement each other.

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"Scale will also be important and as we move quickly towards multiplay, content will allow telcos to differentiate their offerings beyond price alone."

The two companies both have key offerings missing from their companies. Vodafone has been acquiring fixed-line assets across Europe, including in Germany and Spain.

"The acquisition of fixed line assets in Europe is a major aspect of Vodafone’s strategy," commented John Delaney of IDC. "This is mainly because they want to be able to compete by offering customers bundles."

Meanwhile, Sky, which is the dominant player in Pay-TV and the UK’s second largest broadband provider after BT, has an abundance of fixed assets but lacks its own mobile network.

Rival BT is now making a return into the mobile market with the EE acquisition, confirmed in February. Sky countered with the launch of Sky Mobile, an MVNO running on O2’s network.

All telecoms providers increasingly want to provide a lucrative ‘quad-play’ bundle of fixed line, mobile, broadband and pay-TV. BT is alsoencroaching on Sky’s Pay-TV territory with the win of several Premier League matches for BT TV, and CEO Gavin Patterson recently called for Ofcom to increase regulation of the Pay-TV market.

"We would argue that there are certain parts of the market where there is a dominant player – Pay TV – that does not have the same expectations and restrictions that BT has to work with," he said.

"When customers increasingly buy in bundles, the difference becomes extremely blurred between a Pay TV-led bundle and a telco-led bundle."

Sky’s CEO made its quad-play ambitions explicit in a statement accompanying the results.

"Looking ahead, we see an expanded opportunity for growth by serving the market broadly with multiple products and services," he said.

Fernando Elizalde, Principal Research Analyst at Gartner, argues that while a match with Vodafone could be beneficial to both, the stumbling block might be Sky:

"[Vodafone and Sky] may have complementary assets – Vodafone is looking at acquiring fixed assets.

"I don’t know if Sky would be interested in a merger at all. They do have very strong broadband; objectively all they are missing is mobile. They might be wanting to exist only as an MVNO."

"News Corp wouldn’t be willing to get rid of Sky," Elizalde added. "It’s been the flagship and one of the big power companies."

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