Sky Broadband has done a new wholesale deal with Openreach (BT) to sell the operator’s range of “ultrafast broadband” (G.fast and FTTP) services on to UK customers, which will come at a hefty price discount of up to 40%. Sky now hope to double their customer base.

Over the past year we’ve remarked a few times that Sky Broadband’s strategy in the UK has appeared to be at a standstill, while many of their competitors have moved to build their own “full fibre” (FTTP/H) networks. Part of this has been due to the on-going bidding war for ownership of Sky plc by Comcast and Fox / Disney, which has yet to be officially resolved.

The fact that Sky’s CEO effectively ruled the company out of building their own Gigabit capable FTTP broadband network in 2016 has also set a certain tone (here), albeit an unusual one for what is still the United Kingdom’s second largest broadband ISP (c.6.2 million customers with c.60% still on their unbundled ADSL2+ lines and the rest taking superfast FTTC / VDSL2 via Openreach).

The good news is that Sky has finally made a decision on their immediate future and it involves throwing their support behind Openreach’s national infrastructure, as opposed to building away from it. The deal will involve a wholesale price reduction, which appears to be based off the new volume discount scheme that was launched in July 2018 (here).

We should point out that Openreach’s discount scheme is available to all ISPs – including small providers – that can grow their “fibre broadband” customer base on Openreach’s superfast or ultrafast network by an agreed proportion over a 3 or 5 year period.

According to The Telegraph, Sky are aiming to double their broadband base, but this may be wishful thinking in such a difficult market for traditional customer growth (Sky’s own broadband base has struggled to grow for the past year or so).

One other challenge in all this is the fact that Openreach’s 330Mbps capable hybrid fibre G.fast network and their 1000Mbps full fibre FTTP service are still in their infancy. BTGroup reported last month (here) that G.fast has so far covered 1,117,000 premises, while their FTTP rollout had reached 631,000 premises.

Openreach’s current plan envisages G.fast reaching coverage of about 5.7 million premises and FTTP delivering to 3 million premises by 2020, although their full fibre network should eventually reach 10 million by around 2025 if everything goes as planned. Under this strategy Openreach will definitely have the largest FTTP network in the UK and so Sky’s move makes sense.

On the other hand the issue of price could prove to be a headache for Sky, even with the proposed discounts. Many of their rivals are now building alternative FTTP networks and some of those are already offering or planning to offer related services at an aggressively reduced price point (e.g. we expect Vodafone / Cityfibre to do this and Hyperoptic already do the same). Matching this on Openreach’s network would be difficult.

The newspaper article further hints that Sky may not pass the wholesale discounts on to customers due to marketing spend and the extra investment needed to support new network capacity / support systems, which may further weaken their ability to challenge. The key advantage they have though is that Openreach has the scale to build faster, much faster, than their rivals.

This might not quite be the co-funding arrangement that Openreach was hoping for but having the country’s second largest broadband ISP put some weight behind their FTTP/G.fast solutions is still an important development. The race is on and we now await details on the first Sky Ultrafast Broadband packages, which we already know will be supported by a new wireless router.

Source isppreview