BSkyB unveils its full year numbers on July 26th, and the market in general expects 2013 to have been a good year for the broadcaster. But a Berenberg Bank analyst believes that UK media regulator Ofcom again has BSkyB in its sights.
Sarah Simon, from Berenberg’s media division, is blunt: “Recent moves by Ofcom confirm our view that the regulatory environment is becoming less benign. The base case of Ofcom’s proposed pricing from March 2015 would see the cost of full unbundling broadly flat (CPI minus 3 per cent), as opposed to the faster decline of recent periods. Meanwhile, Ofcom has confirmed that it does not intend to price-regulate wholesale fibre, and it has opened an investigation into Sky Sports wholesale negotiations with BT.”
She suggests that Ofcom, a persistent thorn in the side of Sky, is again gearing up for action. “ADSL regulation is also becoming less favourable, with the news that Ofcom proposes a base case of CPI minus 3 per cent on MPF rental (full unbundling). For the last couple of years, however, the decline was greater than this: the absolute decline in MPF rental was 4.5 per cent in 2012/13 and 3.6 per cent in 2013/2014. In other words, the cost to serve that BSkyB must pay in relation to its ADSL customers, will, going forward, drop by less than in the past few years.”
“A separate development on the regulatory front is the opening of an investigation by Ofcom into the provision of Sky Sports to BT’s YouView platform. BT’s complaint alleges that Sky is making wholesale supply of Sky Sports 1 and 2 (on the YouView platform) conditional on BT wholesaling its BT Sport channel to Sky for retail on Sky’s satellite platform. We are likely to hear news on this front imminently, given that BT has requested that Ofcom grant interim measure relief, should it see reason to do so, by the end of July.”
As to BSkyB’s key metric, Berenberg’s report expects DTH subscriber growth to be flat with a net 25,000 new “subs” coming from Sky’s NOW TV product, which she says – if proved correct – to be a disappointing number given how much has been spent promoting NOW TV.
The bank’s note advises clients to ‘SELL’ and gives a target price of 705p (down from today’s 836p).