Aussie PM dumped by own party

[Magda Hassan]

No wonder Murdoch wanted his boy in Canberra.

Foxtel triple-play deal hits NBN snag

PUBLISHED: 30 SEP 2013 00:05:00 | UPDATED: 30 SEP 2013 07:30:47
Foxtel CEO Richard Freudenstein . . . As CEO of BSkyB, he helped Mr Murdoch's UK pay-TV business become Britain's second-biggest internet service provider from a standing start in just five years. Photo: Christopher Pearce

DOMINIC WHITE

News Corporation and Telstra have been in secret negotiations to launch a Foxtel-branded broadband service for more than a year but talks are stuck on the price Telstra would charge for access to its network.
The telecommunications giant has been unable to tell Foxtel's management how much it would charge in the future because of uncertainty *surrounding its $11 billion deal with the national broadband network.
Complexities surrounding the talks threaten to frustrate efforts to boost Foxtel's 30 per cent penetration of Australian homes as broadband providers, free-to-air networks and foreign interlopers threaten its pay-TV monopoly.
The Australian Financial Review has learned that Foxtel chief executive Richard Freudenstein has drawn up a full business plan for a mass-market broadband service.
It would add internet and telephony to the company's pay-TV offering which reaches 2.5 million homes, making Foxtel a powerful "triple play" rival to other Telstra services in the $4 billion broadband market.
Some sections of Foxtel, which wants to launch the offer next year, are understood to be frustrated by slow progress after more than 12 months of confidential talks. Telstra and Rupert Murdoch's News Corporation each own 50 per cent of the pay TV business, which is Australia's most profitable media company, generating operating earning of $944 million in 2012-13.
The Australian Financial Review has also learnt that a key brief for the new chief operating officer that Foxtel is recruiting is to deliver a "triple-play" offering. The triple-play project is led by David Duncan, according to an internal Foxtel memo.
In his former role as CEO of BSkyB, Mr Freudenstein helped Mr Murdoch's UK pay-TV business become Britain's second-biggest internet service provider from a standing start in just five years. Its aggressive campaign included giving broadband away free to its pay-TV subscribers.
However, unlike Foxtel, Sky was able to acquire its own ISP, Easynet, which owned infrastructure that allowed Sky to make huge savings on carriage costs by bypassing most of the network of BT, Telstra's UK equivalent.

LONGSTANDING SHAREHOLDER AGREEMENT

In contrast, under a long-standing shareholder agreement between News and Telstra, Foxtel is prohibited from launching a broadband service unless Foxtel uses Telstra as its wholesale provider and Telstra approves the service.
It is believed the current shareholder agreement does not expire until 2020.
One analyst, who asked not to be named, said: "If Foxtel went to market as an independent company there is no doubt Telstra would effectively be *creating their single biggest competitor. There is no way Telstra will let that happen. It's an incredibly difficult situation for Foxtel."
Under chief executive David Thodey, Telstra has dropped its long-standing opposition to a Foxtel broadband service. Relations between News Corp and Telstra have often been strained over Foxtel strategy in the 18 years since the pay-TV business was founded, although it is believed News Corp executives have worked constructively with Mr Thodey, who was appointed CEO in 2009.
Prominent media figures, including former Foxtel shareholder James Packer and former Austar chief executive John Porter, have argued that the pay-TV company needs to embrace a "triple play" offering to grow subscribers and revenues.
News Corp chief executive Robert Thomson told investors in New York last week that a "triple play offer" had great appeal because it would increase customer "stickiness" and help Foxtel lift its "stubborn" 30 per cent take-up by the Australian population.
While Foxtel grew subscribers by 3.4 per cent in 2012-13, many new customers bought cheaper internet television packages such as Telstra's T-Box.
Discussions between Foxtel and Telstra have been hampered by uncertainty over the price NBN Co would charge Telstra for access to its fibre-to-the-home network (which was due to supplant Telstra's copper network under the Labor government's plans). The Australian Competition and Consumer Commission is due to announce how much NBN Co can charge for access to that network, which could give Telstra a price point on which to base its resale price to Foxtel.
But the change of government has injected more complexity and uncertainty to the discussions.
The Coalition has yet to make clear which parts of NBN Co's $11 billion deal with Telstra it will unwind and how much NBN Co will charge for access once it has been scaled back by the new government. Telstra could also be allowed to keep its cable network open for broadband provision, which Foxtel already uses along with satellites to supply pay-TV.
Meanwhile, many Telstra insiders remain cautious to defend its 47 per cent share of the broadband market, itself under fresh threat from rivals using the nascent NBN.
"It's argued Foxtel represents potentially one of the biggest competitive threats to Telstra's consumer fixed-line business, with a triple-play from the monopoly premium pay-TV operator," wrote Citi analyst Justin Diddams in a note on the topic in November 2012.
Foxtel, though half-owned by Telstra, could cannibalise large chunks of Telstra's customer base if it priced aggressively. It could also steal customers from Telstra's biggest rivals iiNet, Optus and TPG.

HELP REDUCE CHURN

A broadband service would help Foxtel to boost revenues per subscriber, reduce "churn" the proportion of customers leaving and allow it to compete on a level playing-field with competitor pay-TV services as well as broadband over the NBN.
Mr Diddams noted that BSkyB quoted a two-percentage-points-lower churn rate for "multiple product" customers. But he also warned that "rental costs . . . to provide triple-play services could also potentially exceed the revenue opportunity" for Foxtel.
Foxtel, whose growth has been hamstrung by the anti-siphoning rules that prevent key sporting events from being shown exclusively on pay-TV, has launched web and mobile-based services Foxtel Play and Foxtel Go to try to lure customers who cannot afford its $100-a-month premium packages.
It is also preparing to sell a web-based movies-on-demand subscription service, called Presto, that is seen by analysts as a pre-emptive strike against popular US service Netflix, which has registered Australian trademarks ahead of a possible future launch.
Telstra has its own T-Box video offering, while iiNet and others are reselling Fetch TV's subscription TV service over broadband. Meanwhile, Nine Entertainment Co is working on its own video-on-demand service, which it has discussed with Seven West Media, as it seeks to persuade investors of its future growth prospects ahead of its planned $3 billion flotation in December.
Foxtel defied its doubters by reporting a 3.9 per cent rise in revenues to $3.1 billion in the year to June on a pro forma basis supported by a 3.4 per cent increase in subscribers to 2.5 million.
However, it has had to spend more to acquire customers. Marketing costs were $176 million in the year to June, up from $123 million a year earlier, and $103 million in 2011, according to full-year results for News Corp, which was demerged from Mr Murdoch's television and movies operation 21st Century Fox in June.


Telstra, Foxtel and News Corp declined to comment.

http://www.afr.com/p/business/marketing_...pv40I3FPcI