Sky quietly ups Broadband costs
Chris Forrester

BSkyB broadband clients have seen their prices rise by £5 a month, unless they take a phone + broadband (Sky Talk) package. Analysts at Ovum say that Sky has upped its price “with little fanfare”.

Ovum says that Sky has always insisted that its broadband division should stand on its own two feet and be responsible for its own profit and loss. “However, making profit with a base price of £0 a month for the entry-level service and only £10 (€13) per month for the maximum 16Mbps option was always going to be a challenge,” states Ovum. “Sky’s policy was to grow ARPU by increasing both the proportion of paying customers for basic access and the number of additional services they took on top of that, including value-added services (VASs), which Sky claimed would increase ARPU by £4 (€5.2) per month alone – Sky has never revealed what form these VASs would take.”

“Whereas Sky has been relatively successful in pushing its Sky Talk product, which is already a profitable service, it has not managed to increase the level of paying customers for its broadband service (since launch, the percentage of customers on the free service has actually increased from 22% to 30% as of 3Q08), and as far as we know it has not managed to generate VAS revenues of any significance.” Ovum estimates therefore that its broadband ARPU has fallen, not risen, from £7.55 (€9.82) in 3Q07 to £7.27 (€9.45) in 3Q08. This increase in broadband tariffs will therefore raise overall ARPU either by pushing more customers onto Sky’s voice service or by increasing their broadband access bill by £5 (€6.5) per month.

“Whether consumers actually want a service bundle has been a contentious issue within the broadband industry for a number of years. History certainly suggests that it is not for everyone, as operators that have long-established triple-play bundles are still struggling to significantly increase their revenue generating units (RGU) per customer ratios. Indeed, Fastweb in Italy actually unbundled its own services as it became clear that it was alienating significant portions of its market. Sky itself was until recently proud of the fact that it didn’t offer complicated service bundles,” adds Ovum.

“With this move Sky is now actually giving its customers a ‘helpful nudge’ towards the bundle,” argues Ovum, “as the price increases don’t apply if they sign up to both voice and broadband. Instead of waiting for clients to be pulled by the benefits of the bundle, Sky’s strategy here is to push them into it. Although it is too early to say if there is a general trend in this direction, it is interesting to note that TeliaSonera in Sweden has also recently implemented a similar tactic. Whether customers see this nudge as helpful or not is a different matter – based on the views aired over various Internet blogs, we suspect not. However, we still don’t expect a huge customer backlash on this matter. £5–15 is still competitive pricing and so shouldn’t hurt Sky too much. It does take the shine off its marketing campaigns though, suggesting that like other broadband operators in mature markets the company is moving from customer acquisition mode to customer profitability mode.”