Sky may have added the smallest number of broadband customers for some time with 46,000 new broadband additions in the three months to the end of March 2016 but this is offset by a 15% increase in operating profit. Looking back at our records July 2014 with 50,000 additions reported was the last similarly performing quarter.
Sky is still firmly the second largest broadband retailer in the UK with some 5,943,000 broadband customers and while the latest results do not give any detail on the split between ADSL2+ and VDSL2 products, but given we know Openreach supplies VDSL2/FTTP to around 1.8 million connections that are not via BT Retail we suspect Sky has somewhere in the region of 750,000 VDSL2 (FTTC - Fibre to the Cabinet) customers.
"In the UK and Ireland we had a good quarter of growth, following a strong first half. We focused our marketing on building brand awareness for Sky Q, ahead of the first installations towards the end of the quarter. In Q3 we added 70,000 new retail customers and 438,000 new products, including 46,000 new broadband additions. Churn for the quarter was 10.7%, reflecting our decision to limit discounts; we believe this impacts the quarter by around 10,000 additional customers churning. Revenue was up 6% to £6,161 million (2015: £5,824 million) which, together with our strong focus on operating efficiency, delivered a 15% increase in operating profit to £1,154 million (2015: £1,004 million)."Extract from Sky results for period ending 31st March 2016
The reason for the drop in growth is hinted at in the report to investors and that is in a highly competitive retail environment where once people get above the basic speeds needed to deliver streamed video the biggest drive is price and signing up to a service with the best offer, be that low price or free gifts.
Sky has been working with CityFibre in York on a joint venture also involving TalkTalk and while we have been seeing plenty of TalkTalk users testing connections in the area, as yet no identifiable Sky users and an article in The Times may explain why. While during the run up to the big once a decade review by Ofcom Sky was calling for Ofcom to hive off Openreach out of the BT Group, it now appears the tide has turned and Sky is comfortable as a wholesaler of Openreach's fibre products. This suggests that the joint venture in York is not going to be the prelude to Sky rolling out a similar network to millions of homes, but rather a continuation of the sale of Openreach VDSL2 and perhaps once G.fast and FTTP roll-outs accelerate using those. The York service was always described as a trial, with the aim to pass some 20,000 premises which apart from a few small areas has been done. For Openreach this will all be good news, as even if Ofcom goes all Defcon 1 on a full split (which it claims to have retained the ability to do) if Openreach does not perform, it is highly likely that the two largest broadband retailers would be on-board as anchor tenants.