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Sky Mobile Teach-In29th November 2016
2
Agenda
• Introduction and context Andrew Griffith
• Sky Mobile Stephen van Rooyen
• Sky Mobile network Mohamed Hammady
• Financials Andrew Griffith
• Q & A
3
Forward looking statements
This document contains certain forward looking statements with respect to the Group’s financial condition, results of operations and business, and our strategy,
plans and objectives for the Group. These statements include, without limitation, those that express forecasts, expectations and projections, such as forecasts,
expectations and projections in relation to new products and services, the potential for growth of free-to-air and pay television, fixed line telephony, broadband and
bandwidth requirements, advertising growth, DTH and OTT customer growth, On Demand, NOW TV, Sky Go, Sky Go Extra, Sky+ HD, Sky Q, Sky Store, Sky Online, mobile,
Multiscreen and other services penetration, revenue, administration costs and other costs, advertising growth, churn, profit, cash flow, products and our broadband
network footprint, content, wholesale, marketing, synergies and integration, and capital expenditure.
These statements (and all other forward-looking statements contained in this document) are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond the Group's control, are difficult to predict and could cause actual results to differ materially from those
expressed or implied or forecast in the forward-looking statements. These factors include, but are not limited to, the fact that the Group operates in a highly
competitive environment and faces competition from a broad range of organisations, the effects of laws and government regulation upon the Group's activities, the
fact that the Group’s business is based on a subscription model and its future success relies on building long-term relationships with its customers, its reliance on a
complex technical infrastructure which is subject to risk of failure, change and development, failure of key suppliers, the Group’s exposure to financial market risks, the
fact that the Group must protect its customer and corporate data and prevent breaches of security, risks inherent in the implementation of large-scale capital
expenditure projects, the fact that the Group relies on intellectual property and proprietary rights which may not be adequately protected under current laws or
which may be subject to unauthorised use and the fact that people at Sky are critical to the Group’s ability to meet the needs of its customers and achieve its goals
as a business.
Information on the significant risks and uncertainties is provided in the “Principal risks and uncertainties” section of Sky’s Annual Report for the full year ended 30
June 2016. Copies of the Annual Report are available from the Sky plc web page at www.sky.com/corporate and in hard copy from the Company Secretary, Sky plc,
Grant Way, Isleworth, Middlesex TW7 5QD. All forward looking statements in this document are based on information known to the Group on the date hereof. The
Group undertakes no obligation publicly to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
VERSION 2: 23 November 15:00
Fortitude
Series 2
Andrew GriffithGroup COO and CFO
5
Pay TV broadcaster
Entertainment for everyone
Broad range of packages
DTH, IPTV, OTT, Mobile
Every screen, everywhere
Triple play/quad play
Service to suit customers needs
Sports and movies centric
High reliance on big bundle
Exclusively DTH
Main TV in living room
Single play
Customer service on the phone
Broader, consumer-led business
6UK and Ireland revenue excluding Sky Bet
1 94233
380550
7761,008
1,249 1,4341,545
1,847
2,231
2,681
3,069
3,4653,810
4,111
4,504
4,908
5,2755,854
6,4966,627
7,018
7,3777,820
8,371
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
+£3.1bn
+£2.6bn
+£1.9bn
+£0.8bn
Organic revenue (£m)
7
Formula 1®
• Winning content portfolio
• Delivering direct to consumers at scale
• Clear brand leadership and happy customers
• Best in class sales capability
• Deep customer insights providing advantage
8
Advertising
Customers
Home communications
Transactional, Rent and Buy
Mobile
Efficiency
Programme sales
TV products
HD
TV
Channel sales
9
0%
20%
40%
60%
80%
June 08
VMED
BT
Talk Talk
24%Sky Broadband wins
Ofcom award for ‘Best
Customer Satisfaction’
for 5th year in a row
2016
2007
Sky Talk
launches6 million
subscribers3 million
subscribers
2011
Sky Fibre
launch
2012 20162013
2nd largest ISP
after buying
O2 Broadband
2005-6
Acquired Easynet,
Sky Broadband
launch
0%
Line rental market share
Stephen van RooyenCEO UK and Ireland
11
UK and Ireland in a strong position to deliver continued growth
Market leader
1. Sky Store rapidly taking share
of the digital retail market
2. Sky Box Sets is the best box
set service in the market
3. Sky Broadband has grown to
be the no.2 ISP
4. Sky Mobile offers a significant
growth opportunity
1. Number 1 in Sport
2. Best and most complete
movies service in the world
3. Broadest range of the highest
quality basic content
4. Greatest viewing experience
5. Serving the whole market
Market challenger
+
12
Sky Mobile is a significant growth opportunity
• The market is large and we have no legacy
• We have the customer appetite
• We have the brand
• We have the proposition – that’s fresh, unencumbered,
anchored in what our customers expect and love about Sky
• We have the right infrastructure in place
• We have the capabilities to succeed and
the experience to deliver
13
Our view of
the market,
our brand
and
customer
appetite
Our
proposition
Our go to
market
strategy
1. 2. 3.
Our pricing
4.
14
1. The market
Our brand
Customer appetite
15
1. Mobile is a significant growth opportunity for Sky
>2 per Sky HH
Cross-sell
52m PAYM
Customer GrowthRevenue Growth
£15bn
Source: OFCOM Communications Market Report 2016, Experian and internal data sources
16
1. Mobile is a significant growth opportunity for Sky
Active monthly mobile subscriptions
in Sky homes to target
50+23m
and growing
17
1. Market trends are making it even more attractive for us
Growth in
subscription
Growth in
SIM-Only
Growth in data
usage
Growth in online
purchasing
Aligns with Sky’s
subscription model
Easier to sell online
and to families
Aligns with Sky’s
leadership in content
Convergence around
key handset
manufacturers
Emerging “offload”
opportunity
Improved customer
experience & economics
through voice over WiFi
Consumer driven trends Technology trends
18
1. Our extensive customer research identified clear pain points
for customers
Source: Mobile Positioning Qual research Dec 2015
Opaque tariffing Expensive data Loyalty unrecognised
Inflexible contracts Unloved brands Poor service
19
Translating into very high ITP
1. Our research showed spontaneous credibility for Sky and
very high intention to purchase once brand revealed
Intent to Purchase in next 12 months
of ‘8-10’ in consumer research
(indexed to Sky Go)
Sky Mobile Sky BB Sky Go Sky Store
Sky spontaneously named across all three key
requirements for new mobile provider
20
2. Our Proposition
21
22
Sky Mobile based around five key pillars
All backed by Sky’s unrivalled Customer Service
23
23
Your data is yours to keep.
At the end of every month we’ll automatically
Roll over whatever’s left into your piggybank
for you to use whenever you like.
24
2. Roll customer benefits
• Any unused data is automatically rolled over into
your piggybank at the end of the month
• No limit to the amount of banked data and it is stored
and available for up to 3 years
• If you run out of data you can simply roll back data
from your piggybank to use immediately
• Data in the piggybank can be used by any phone
on the same customer account giving more value back
to families
Addressing pain points
Expensive data
Inflexible contracts
25
25
Create a plan that’s just right for you.
Pick your data, calls and texts. And no
matter what you decide you can choose
to change your Mix whenever you like.
26
2. Mix customer benefits
• Can change plan to meet your needs as many
times as you want during your contract
• Ability to instantly upgrade to larger data pack
mid month if needed
• Uniquely allows customers to buy data only plans
with PAYU Calls and Texts
• No expensive out of bundle charges for excess
data usage
Addressing pain points
Inflexible contracts
Opaque tariffing
27
Sky TV families don’t have to
pay for another call or text with
any Sky Mobile plan
28
2. More value for Sky TV customers
• Free Unlimited Call and Texts for all Sky TV customers
• Appeals universally to both high and low call users
• Switch and Save
– Families can save hundreds of pounds per year when
they switch to Sky Mobile
Addressing pain points
Loyalty unrecognised
Opaque tariffing
29
For the first time, Sync Sky+ recordings
with your phone to create your own
personal Sky playlist of shows you love
to watch wherever you are.
30
2. Sync customer benefits
• Create your own playlist by synching your Sky+
planner to view when you’re out and about
• Instantly find your favourite shows
• And download via WiFi allowing you to make the
most of your data allowance
• Or if you need to just click to stream instantly
over our 4G network
Addressing pain points
Unloved brands
Loyalty unrecognised
31
3. Our go to market approach
32
HIGH
3. Focused on needs of core segments that over-index in
Sky households
DA
TA
US
AG
E
LOW
CALLS & TEXTSLOW
Medium Data / Low Comms Users
12m
Low Data / Low
Comms Users
14m
Medium Data /
Comms Users
20m
unlimited everything
6mc40%
CAGR
Source: Internal segmentation
33
3. We have adopted a digital first approach to sales
• Efficient and low cost
route to market
• Buy online or via mobile
• Dynamic data driven sales
platform
34
3. And offer customers simple ways to manage their account online
000000150054520
07780 000 000
000000150054520
35
3. We have an unrivalled set of marketing capabilities
Europe’s only targeted
TV platform
Existing marketing assetsReach and frequency
OBTM
EmailSMS
Direct Mail
£400mMedia value
4½hrsDaily viewing
36
3. Leverage Sky’s capabilities to drive upsell and cross-sell at scale
Customer
interactions
Home visits Retail kiosk
footfallNet products
sold per annum
3m3m 55m 2.6240m
Deep customer
insight
petabytes of consumer data
37
4. Our pricing will be simple
and transparent
38
39
Free for Sky TV customers
40
Customer Illustration 1
Kathleen, 43
Single parent, 2 young children
Samsung Galaxy S5 o2,
1 GB/1000mins/UL texts
Sky Original
Tight household budget
50+£60Annual saving
• Gets full value from her data plan– Doesn’t lose unused data
• Doesn’t worry about calls– Free calls and texts
Sky Mobile
1 GB, free UL calls/texts
41
50+£288Annual savingThe Edwards family
• Gets the unlimited calls and texts
he and his wife need
– Free calls and texts
• No worries about kids running up
large out of bundle charges– Family share piggybank
2 adults, 3 children at secondary school
iPhone 6, Vodafone
2 x 5 GB/UL, 3 x 1 GB
/1000 mins/UL texts
Sky Sports, Sky Cinema, Family (inc box sets)
Comfortable but need to live to a budget
Customer Illustration 2
Sky Mobile
1 x 5GB , 1 x 3GB, 3 x 1GB
All free UL calls/texts
42
• No wasted spend on comms– Only pay for calls and texts used
• Gets full value from his data plan– Right sized data plan with comfort to Roll unused
50+£96Annual savingDuncan, 34
Single
iPhone 6, EE
4 GB, Unlimited
calls/texts
Freeview, Netflix
Enough to fund lifestyle, no savings
Customer Illustration 3
Sky Mobile
3GB PAYU calls/texts
43
4. Phased approach to sales ramp up
Now Mid December January 2017 Spring 2017
Sales to Staff Sales to pre registered customers
Sales to everyone Handset Sales
44
In conclusion
• The market is large and we have no legacy
• We have the customer appetite
• We have the brand
• We have the proposition - that's fresh, unencumbered,
anchored in what our customers expect and love about Sky
• We have the capabilities to succeed and
the experience to deliver
• We have the right infrastructure in place
Mohamed HammadyCTO UK and Ireland
46
Since our broadband launch 10 years ago we have built a
world class fixed telecoms network
• 7,250km of nationwide fibre optic network
• 64 points of presence (PoPs)
• Metro rings in London, Birmingham, Glasgow and Edinburgh
• IP based voice switching platform and scaled data core
delivering 6Tbps at peak
• Switching over 7 billion minutes of traffic a year
• Over 100m calls originated monthly on our network
• Over 4,000 circuits carry voice traffic in and out of our network
47
Reflected in customer growth and the quality of service delivered
Best quality service delivered for data and voice
Sky
BT
Virgin Media
Talk Talk
Source: Internal estimates based on company reports adjusted for M&A activity.
0708 0809 0910 1011 1112 1213 1314 1415
Cumulative organic net broadband adds
48
We have now extended that expertise into creating our own state
of the art mobile service as a ‘Deep’ MVNO
MNO
Traditional
Thick MVNO
Thin MVNO
Reseller
Degree of integration
Time to market
Upfront investment
LOW HIGH
Flexibility
/ Control
-
+
Sky Deep
MVNO
Brand, Pricing
& Customer
Management
SIM, SMS, MMS
and VoicemailMobile Core
Evolved IMS
architectureBearer Control
Towers and
Spectrum
49
Leveraging our existing fixed network capabilities to optimise cost
CDN optimisation
for video
Transit and switching
cost efficiencies
Voicemail
Use existing operations
and support
Billing Public WiFi
50
Full mobile core enables future innovation and flexibility
Session control Use WiFi or
own spectrum
Direct handset
relationships
Full IMS Core
Ability to switch
host MNOApplication
awareness
51
Online Charging System and billing integration gives full control of
plans and pricing
Real time fraud
and credit control
Visibility to avoid
bill shock
End to end
customer service
Change plans and
rates easily
Tariff innovation
52
Roaming coverage in over 190 destinations, prioritising bilateral
relationships with top 25 countries to improve economics
Targeting Bilateral
relationships
Roaming coverage
No roaming coverage
53
We have integrated with over 20 core partners to deliver
an end to end service
Network Sales & Operations Interoperability
Risk
Management
54
Deep MVNO architecture gives full control with limited up
front investment
• Own the SIM with full control over setting tariffs, bundles and services independently
• Full end to end operational control including sales, provisioning, billing and customer service
• Leverage existing core competences in data and voice and extend to our own international
roaming services
• State of the art core mobile platform enables Sky to manage and implement adoption of new
mobile technologies
• Ability to switch rapidly to alternate network provider with minimal impact on customers
• Deliver attractive margins with limited investment and no need to build capital intensive
national macro radio network
Andrew GriffithGroup COO and CFO
56
Significant opportunity
For customers For shareholders
• Opportunity for incremental
revenues, profits and
cash flows
• Excellent ROCE
• Profitable standalone business
• Great value
• Quality service from a
trusted brand
• Flexibility
57
Underpinned by four key components of our plan
Flexible MVNO agreement
Low cost customer acquisition model
Attractive customer economics
Loyalty benefit
58
Flexible MVNO agreement
• Modern ‘data first’ agreement
• 99% data coverage1 of UK from day one
• Launch with 4G as standard
• Full equivalence of service quality and future functionality
• Built in protections against declining retail pricing and
escalating usage
• Long term contract with Telefonica
1. Refers to in-door, coverage
59
• Proposition targeted at existing
Sky TV customers
• Acquisition model will leverage
– Online only
– No retail shops
– AdSmart
– Existing Sky channels
Existing TV
customer
Non-TV
customer
SAC range £1 to £70 £1 to £120
Average c.£33 c.£99
Acquisition mix 80%-90% 10%-20%
Low cost customer acquisition model
Illustrative only
SAC includes cost of SIM, number porting, call centre costs and direct marketing
60
Attractive customer economics
Illustrative only. Monthly revenue includes data, calls, texts, roaming, international and premium charges and termination revenue.
Direct costs include network operator costs (Telefonica) and termination costs.
Gross margin excludes any allocation of Sky fixed costs (e.g. customer service, ATL marketing, bad debt, billing).
Kathleen Edwards Family Duncan
Sky TV customer Sky TV customer Non-Sky TV customer
Monthly ARPU (excl VAT) £15 £80 £24
Direct Costs £(10) £(65) £(11)
Gross Margin £5 £16 £13
Gross Margin percentage 32% 20% 55%
Gross margin payback 7 months 2 months 8 months
61
Summary of key assumptions
Modest
fixed costs
• Limited dedicated ATL marketing and brand spend
(between £20-£25m p.a.)
•Dedicated customer service to manage mobile customers
• Sky Mobile core network operating costs
• Even ‘fixed costs’ are scalable with success
Limited
capex
• Estimated £20-£30m per annum capex going forward
• Total investment of £80m by end of 30 June 2017
(including £35m this year, £45m in prior years)
• Average UEL of c5 years – expect depreciation of £15-£20 million p.a.
62
Summary of key assumptions
Clear
guidance on
handsets
• SIM only launch – handsets to follow in 2017
• No handset subsidy - c10% handset margin
•Handsets fully unbundled from airtime tariff
• Two easy options for customers:
– Buy handset outright upfront, or
– Spread payments via a Consumer Credit Agreement
• Working capital impact limited to three months only
• Use of third party financing for handset receivable
63
Bringing it all together
• Standalone profitable with
3 million customers
• Excludes loyalty benefit to Sky
• 1% point reduction in TV churn
worth c.£50m EBIT
Illustrative economics £m@ 3 million
customers
@ 5 million
customers
Airtime revenue 550 970
Handset, insurance & accessories
revenue750 1,090
Total Revenue 1,300 2,060
Handset and supply cost – inc
provision for bad debt(670) (960)
Direct costs (370) (620)
Variable marketing – i.e. SAC for new
customers(50) (50)
Fixed costs – inc ATL marketing,
overheads, technology, depreciation and
customer service
(180) (270)
EBIT 30 160
EBIT margin %
(before loyalty benefit)3% 8%
Illustrative only – numbers have been rounded
64
Attractive financial returns
1Calculated using the methodology of Barclays 15 June 2015 – European Telecom Services report
• Low risk, high return investment
• Standalone profitable in FY20 (third full year)
• ROCE of >20% by year five1, growing thereafter
• Accretive to earnings every year in FY20 and onwards
• All excluding value of loyalty benefits
Autumn internationals
65
Summary
• The market is large and we have no legacy
• We have the customer appetite and the brand
• Deep MVNO delivers attractive margins with limited
capital investment
• Sky Mobile will benefit broader business
– Provide great value to customers
– Improve loyalty
• Profitable business, excellent returns
66
Q&A
