BT's broadband broadcast plans

At the beginning of 2002 Sir Christopher Bland announced that BT would be entering the broadcast market and said that he could envisage BT becoming an integrated media company - one that would make, aggregate and broadcast television content. Yet it quickly became evident that Sir Christopher had neglected to inform BT's major shareholders of their company's new strategic direction.

A week later, the 'new' strategy had been watered down and a new statement declared unequivocally that 'We will not be a fully, vertically integrated media company like BSkyB'. While the episode may have made Mr Bland look silly, it did provide a valuable insight into the direction he would like to take the company. Assuming Mr Bland had had the full backing of the shareholders, how realistic a plan would it have been?

The first - and easiest - part of Bland's statement to de-construct is BT as TV programme maker. Forget it. That part of Sir Christopher's statement was the most misinterpreted and the first to be fully retracted. Okay, so its online portal BTopenworld has created some unique broadband services and aggregated others from third parties - including games, horoscopes and film clips - but for BT to develop a programming arm now, or even in the foreseeable future, is ludicrous. Industry experts point out that not even Sky made original shows in the beginning of its existence; it simply brought in blockbuster films, showed a lot of American programming and bought the rights to as much major sport as possible.

Bland's point about programme aggregation is also suspect. Cynics suggest that BT already has a poor track record selling telephone services to consumers; so how would it fare marketing discretionary services like entertainment TV channels to the general public? The answer from the cognoscenti is 'not very well'.

Sir Christopher's updated statement that 'We are more likely to focus on distribution rather than creation or ownership of broadcast content' is a return to reality. To secure its future in a world where its traditional business - providing voice - is becoming increasingly competitive, BT must upgrade its network to offer additional services. It is a case not of 'if' but 'when'. Luckily for Sir Christopher, the technical barriers to BT expanding its broadband numbers and setting up the fabled 'triple-play' of voice, data and video services for its subscribers are falling fast.

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Costs falling

The cost of providing broadband access to subscribers - and hence building a network capable of TV content distribution - used to be an un-commercial €1,3600 per customer. Now improvements in technology, exemplified by new self-installation DSL products, and falling costs are making local access telecom's companies sit up and think.

Moreover, Alcatel's vice president of Carrier Services Development, Mike Wilkinson, believes that DSL costs are set to drop again in the next 18 months bringing them under €680 per subscriber. Falling costs are also being driven by improvements in broadcast encoding technology: three high quality video channels can now be transmitted simultaneously down a single DSL pipe - creating a further incentive for telcos to invest in their local access networks.

Simon Hochauser, Chief Executive of Video Networks - a company which already operates a Video-on-Demand (VoD) and time-shifted TV service using BT's DSL infrastructure - is pleased with Mr Bland's comments. 'It's refreshing for a BT chairman to raise this debate and there is an excitement that BT is talking about broadband above everything else,' says Hochauser. 'BT just needs to clarify in its own mind on the non-network aspects of its strategy because there is no economic justification to hold back,' he says.

The BT that Bland inherited last year was a company with huge debts and a significantly depressed share price. Since then he has decoupled the company's mobile arm and brought debt levels down to more manageable levels. BT is beginning to look healthy again.

Bland's plan is clearly not just to defend BT's traditional markets but to penetrate new ones - and broadband offers the best way to do this. 'BT is sitting on a goldmine,' says Video Networks' Hochauser.

If BT were to develop a broadband broadcast network, it would certainly be a compelling offering. The ability to receive voice, fast Internet access, broadcast TV and VoD from one wall socket and on one bill would be too good for many people to turn down.
But while this is ultimately where BT would like to go, there is no danger to its competitors in the immediate future. The development of such an infrastructure would cost millions and the prevailing opinion at BT is save rather than spend. However, BT has served notice to its competitors and it is up to them to use this window of opportunity to establish an unassailable lead.
We will see.

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