Sky TV boss: mobile phone service ‘only a matter of time’, shares undervalued

Sky’s new broadband service, which is currently in staff trials, will move to a customer trial in about six weeks, ahead of a commercial launch early next year, chief executive Martin Stewart told shareholders at the company’s virtual annual meeting this morning.

In response to an investor question about whether Sky would add mobile phone service, the CEO said, “It is just a matter of time. Just like broadband, we see this as a big opportunity for us.”

Sky would follow an MVNO (mobile virtual network operator) model to enter the mobile phone market, Stewart said. MVNO arrangements – which the Commerce Commission is encouraging – see a company launch a mobile service using an incumbents network. An example is Warehouse Mobile, launched by The Warehouse in a wholesale arrangement with 2degrees, or Kogan Mobile, which piggybacks on Vdoafone NZ’s network.

The ComCom noted in a recent report that MVNOs accounted for less than 1 per cent of the mobile market in NZ, although have a more significant presence in Australia and the UK.

Stewart said Sky Broadband would be cheaper and faster and backed by better customer service than today’s ISPs.

Sky chief executive Jolie Hiodson earlier brushed off Sky’s entry into the internet service provider market, saying it would become just another of around 80 broadband providers.

A recent Sky customers survey polled its customers on several broadband options, including some that saw the price of Sky Broadband fall sharply the more Sky channels they committed to – pointing to an obvious market strategy.

Today, Stewart did not offer any details of plans, other than to say that some ideas run by customers in surveys were “reported in the media before they were fully-formed.”

In response to an investor question about Sky’s hopes for broadband marketshare, Stewart would not give a figure, but noted a comment by Sky director Mark D’Arcey that BT reached number two in the broadband market in the UK after launching internet service.

Elsewhere, Stewart confirmed a substantial drop in streaming customers, as flagged at Sky’s full-year result briefing.

He said Sky’s total number of streaming customers across its Neon, Sky Sport Now and RugbyPass services had fallen from the 404,000 for the year to June 30 to 315,000 as of August 31, chief executive told shareholders at the company’s virtual annual meeting this morning.

“Due to the way we recognised former Lightbox customers following the Neon merger, it’s important to note that there was minimal revenue impact from that change due to the
commercial arrangement we have in place with Spark for those customers.”

Sky bought Lightbox from Spark for $6m in the New Year, and merged it with its own Neon June. A wholesale deal saw some Spark customers continue to get Lightbox free up to the merger.

Martin also said the board was “frustrated” at Sky’s share price, which has remained near its historic low despite the company forecasting a return to profit in FY2021 then, at its full-year 2020 result, upping its profit guidance for the current year due to the earlier-than-expected return of sport, and alerting investors to the possible return of the dividend in FY2022.

“We do think the company is materially under-valued,” Stewart told investors, noting that he personally bought shares during the company’s recent capital raise.

Sky shares were flat at 15c going into the AGM, then dipped slightly to 14.8c in late morning trading.

Fat Prophets research head Greg Smith is on the same page as Stewart.

Smith told the Herald that at its current share price, “The level of pessimism in the market around Sky is extreme, and probably excessive in my view.”

“A share price of at least 35 cents is achievable from here,” he said. “The question is how long.”

Other analysts are more cautious. Following Sky’s full-year result report last month, Jarden’s Ari Dekker kept the pay-TV broadcaster at neutral but upped his 12-month target price by 1c to 17c.

Forsyth Barr analyst Matt Henry mantained his neutral rating and 16c target.

Another investor asked Stewart if the rise in streaming revenue could offset the decline in satellite subscribers (at its full-year result, Sky revealed a big just in streaming subscribers – see graphic above – but also that average revenue per streaming subscriber per month was just $19.80 versus the average $82.02 spent by a traditional set-top box customer).

Stewart said Sky would not raise the price of Sky Sport Now or RugbyPass, but would look to offer more value, and more associated products, including broadband.

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