LONDON -- Things are getting personal between BT (BT.A -1.65%) (BT) and Sky (SKY). The telecoms company is muscling in on Sky's lucrative sports channel business, and the 39% News Corp.-owned pay-TV broadcaster doesn't like it.
Last year BT bought rights to screen Premier League football and Premiership rugby. It's miffed that Sky is refusing to run adverts for its new sports channel, and has asked industry regulator Ofcom to intervene. Yesterday Sky's Corporate Affairs director penned a letter to the Financial Times, saying of BT that "this £22 billion gorilla in puppy's clothing would do well to look at its own double standards." BT is also undercutting the price Sky charges pubs for its sports channel, something that's likely to hit Sky's bottom line.
These spats are visible signs of some big industry trends at play, around convergence, bundling, and content.
A few years ago BT and Sky wouldn't have seemed obvious competitors, but technology is forcing the convergence of disparate players. Sky has used its strong sports-led content to build the biggest pay-TV company in Europe. As that's broadened to include broadband, its business overlaps with BT's.
The marketing ploy of bundling services together ramps up the stakes. "Triple-play" bundling of TV, broadband, and fixed-line phone has in-built economies, and helps to make customer subscriptions more "sticky." BT's move into TV is as much defensive as aggressive, to stop Sky and Virgin Media poaching its broadband customers.
The 4th dimension
Virgin -- about to be taken over by Liberty Global -- is pushing quadruple-play bundles with mobile phone connection included. As wireless services become more data-hungry, that's likely to become more popular.
The first quadruple services were offered by Verizon, Vodafone's (VOD -3.31%) partner in its U.S. joint-venture Verizon Wireless. There's possibly a lesson about Vodafone in these moves. The mobile provider shrewdly built up its backhaul fixed-line infrastructure with the acquisition of Cable & Wireless, but some analysts see its lack of cable assets as a strategic weakness.
Vodafone has been rumored to be interested in Kabel Deutschland, which would take it into bundled services in continental Europe. If Vodafone swaps its U.S. interests for a large pile of cash, that's the sort of asset it's likely to buy.
The explosion of data capacity puts a premium on quality content. One company exploiting that trend, shifting from a purely advertising-driven business model, is broadcaster ITV (ITV). Rumors of a private equity bid abound, but with a market cap of 5 billion pounds, it could be a mold-breaking acquisition for a telco.
One eminent investor backing the telecoms sector is Invesco Perpetual's Neil Woodford. He has 10% of his funds invested in just two stocks in the sector. And Woodford has an unrivaled record for stock-picking. His high income fund is "the best performing of any fund investing in the U.K. since it launched," according to Hargreaves Lansdown. It has grown at 12.6% a year since 1988.
You can learn more about how Woodford selects stocks and his pick of the telecoms sector in a new report from the Motley Fool: "Eight Shares Held By Britain's Super-Investor." You can download it by clicking here -- it's free.