PRESS RELEASE: Fitch: UK Triple-Play Competition Intensifies on BT Move

The following is a press release from Fitch Ratings: Fitch Ratings-London-02 July 2010: Fitch Ratings says that BT Group's price announcement regarding its TV sports packages highlights the intensifying competition of the UK triple-play services market (telephony, broadband and TV), especially as British Sky Broadcasting is planning to increase the retail and wholesale prices of its Sky Sports 1 and 2 channels. (Fitch rates BT 'BBB'/Stable/'F2', and BSkyB at 'BBB+'/Stable.) "BT's re-vamped TV offering with Sky's premium sports content at a lower entry price will give consumers greater choice," says Damien Chew, a Director in Fitch's European Telecoms, Media and Technology team. "BT's renewed push into the TV market marks part of its efforts to maintain market share and strengthen cash flow generation in a rapidly evolving TV and broadband market." Sky plans to increase the retail price of its Sky Sports 1 and Sky Sports 2 channels by GBP3 per month from 1 September, reflecting the increased number of Premiership football matches which will be shown in the coming season. Under Ofcom's wholesale pricing mechanism, this will mean that the wholesale cost of both channels will rise to GBP19.07 a month from GBP17.14. Sky has to give its wholesale customers a minimum of 45 days notice of a change in the wholesale price. BT meanwhile announced today that it would sell both of Sky's Sports channels from 1 August 2010 in time for the new football season, as well as ESPN and its own on-demand sports content, for GBP16.99 a month, or for GBP11.99 a month if customers sign up for a two-year contract for a bundled package including telephony and broadband. As a result of Sky's price increases, BT is likely to have to subsidise the cost of each customer signing up to its sports TV service. However, the larger retail price difference after BSkyB's price changes could work in BT's favour as it looks to gain new subscribers. Over the medium-to-long-term, Fitch does not foresee a major change to Sky's business, as it has significantly strengthened its proposition in recent years with sports only providing one part of its wide service offering. With the expected increase in competition from BT, Sky has recently taken steps to differentiate its sports offering. Subscribers to Sky's sports package, from 12 July for the rest of this year, will also gain access to Sky's sports content on its Mobile TV app for iPhone and iPad, and over the internet. Sky has also developed a strong brand with a reputation for good customer service and innovation. Sky's High Definition (HD) TV service is gaining momentum with 428,000 customers signing up in the quarter to March 2010, taking the total to 2.5 million, while 19% of Sky's 9.77m customers now take its TV, broadband and telephony services. A wider spread of its premium content could even be a positive for Sky, increasing the customer base and total revenues. BT is using discounted content to drive consumers into an internet protocol TV (IPTV) solution. Its current Pay-TV offering, a combination of the UK's digital terrestrial television (Freeview) and IPTV, had only 467,000 subscribers at end-March 2010, and BT could gain financially by keeping customers' broadband and voice services on its network. The provision of Sky Sports should make BT's TV offer more attractive, which is likely to be enhanced in the next two years as it rolls out fibre to support higher bandwidth interactive services and 'Project Canvas', an improved digital TV offering. BT's three-year guidance implies that free cash flow generation in the UK (excluding Global Services) is likely to be broadly stable even with the increased investment in TV and the rollout of fibre. To achieve this, Fitch believes that BT needs to remain competitive in the converging TV and broadband market, while maintaining its strict financial discipline. An increased GBP2 a month per subscriber in wholesale content costs is not significant given BT's size, and is likely to be within BT's stated target of additional customer investment of GBP200m for the current financial year. Fitch recognises that there is still regulatory uncertainty in the UK's rapidly evolving telecoms and TV market. BT's offer of Sky sports channels follows Ofcom's ruling in March that Sky would have to cut the wholesale price it charged for its premium sports channels. Sky has already appealed against the ruling, while reaching a temporary settlement in April whereby BT will pay the wholesale price for the channels and put the difference between that and Sky's retail price into an escrow account, pending the outcome of the Competition Appeal Tribunal proceedings. For further details on BSkyB's rating rationale, please see the 2 October 2009 Credit Update report which is available at www.fitchratings.com. Applicable criteria, 'Corporate Rating Methodology', dated 24 November, 2009; 'Rating European TV Companies', dated 12 March, 2010; and 'Rating European Telecoms Companies', dated 12 March, 2010, are available at www.fitchratings.com. Contacts: Damien Chew, London, Tel: +44 (0) 20 7682 7603, Michael Dunning +44 (0) 20 7417 6343. Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com. Additional information is available at www.fitchratings.com. Related Research: Corporate Rating Methodologyhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489018Rating European TV Companies - Specific Credit Factorshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=503988Rating European Telecoms Companies - Sector Credit Factorshttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=503986 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. (END) Dow Jones Newswires July 02, 2010 04:27 ET (08:27 GMT)