BoAML: Sky broadband discounts likely to be a permanent feature

Following Sky’s announcement last week of new broadband offers – giving its customers half-price, unlimited broadband for 12 months or 12 months free broadband for Sky Sports subscribers – Bank of America Merrill Lynch (BoAML) has said it expects the discounts to remain a permanent feature.

Details of the new offering include Sky Broadband Unlimited for £3.75 per month for 12 months for Sky TV customers switching, or £5 per month for customers who don’t take Sky TV.

Meanwhile, Sky Fibre Unlimited will cost £10 per month for 6 months – a 50% discount – and is available to all new customers and also those current Sky Broadband customers upgrading to Fibre.

After taking into account the mix between sports and non sports broadband additions, BoAML estimates the latest DSL offer extends the average discount to around 9 months and will likely cost Sky £500,000 in revenues for each week that the offer runs. Fibre discount is estimated to cost Sky £700,000 a week.

The offer could also accelerate the migration to fibre, pulling forward £600 million of costs – including new routers and BT migration fees – that Sky will have to incur to move its existing customer base over.

Together, the bank says, this would suggest a profit impact of over £60 million if Sky ran the promotion for a whole year.

“While Sky suggests the offer will only be temporary, there has been a permanent shift in the competitive environment (with Talk Talk and BT now able to offer TV at closer to marginal cost) and we would expect increased discounts to become an ongoing feature,” said BoAML analyst Daniel Kerven.

“It remains to be seen what level of discount will be consistent with the (ongoing) change to the competitive environment and consensus TV and broadband additions. However, we can be certain that the trade off between volumes, prices and discounts is less attractive than it was prior to increased competition in the market.”