The figures this week from BSkyB have yet again brought into focus the importance of technology in our day to day lives and, equally importantly, just how the different technologies are converging.
Sky is enjoying its own purple patch, with its recently launched broadband service showing early signs of success, continued growth in new subscribers and its digital video recording service, Sky+, going from strength to strength. Concerns do remain around the shares, given the amount of money which is currently being reinvested in the business, along with the other looming spectre, namely the awaited decision by the competition authorities as to whether to investigate Sky's strategic purchase of an 18% stake in ITV last year.
The explanation for the competition in this sector gathering pace can be put down to any number of reasons.
To begin with, digital TVs. These were being sold at an incredible rate in the lead up to the World Cup in the summer by the bigger retailers to the extent that the Government’s aim of switching off analogue completely by 2012 is all of a sudden ahead of schedule. With such a TV set comes the ability to mingle into the digital age with a number of free digital channels, as well as a fair sprinkling of radio channels also.
With the advancement of sound quality and the ability to very simply link up to a music system, the TV has become (if it wasn’t before) the central entertainment hub of most living rooms.
“Quadruple Play” providers have been talked about so much over the last few months that the phrase has already been abbreviated to “quadplay” and, no doubt, will become shorter still in due course.
Quadruple play is all about providing TV, Internet (broadband), fixed and mobile telephony all within the same offering. This convergence of technology has enabled the likes of Sky to now become competitors of Carphone Warehouse and indeed BT, not to mention NTL, who will shortly become Virgin Media in what is expected to be a blaze of publicity.
As consumers, we will make our way towards using these technologies at our own pace. As investors, we need to be thinking about anticipating who are going to be the winners going forward.
BT for example had a traditional business which was originally monopolistic but was certainly based on fixed line communications. It recognised some time ago that it needed to change and adapt and, as mentioned in its most recent figures, over the last quarter alone its revenues in “new wave” technology were up 20%, now accounting for some 35% of total revenue. A step change indeed.
The current market consensus for BT is a hold, given the fierceness of the competition and the fact that the shares have enjoyed a rise of some 49% over the last year. Sky, on the other hand, with a rather more sedate 13% rise in that period, is viewed as cautiously positive.
In the meantime, one thing remains certain. The time is not too far away when one box in one room will provide all communication and entertainment possibilities.
BT, or not BT, that is the question.
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Richard J Hunter
Head of UK Equities
Hargreaves Lansdown
www.hargreaveslansdown.co.uk