London Briefing: Last October, the satellite broadcaster BSkyB bought Easynet, a broadband internet supplier, writes Chris Johns. On the face of it, a distributor of TV programmes and a supplier of internet services don't have a lot in common.
But, as many other companies have found, the internet has the ability to disrupt established business models in a number of surprising ways.
Telephone companies are the most obvious example of disruption. Only this week, Carphone Warehouse made its own broadband statement: in an effort to get customers to sign up to its core products, the phone company is throwing in a free broadband offer.
Manchester United also announced that it is thinking about diversifying. Like a lot of other businesses, they want to be a phone company. In the case of the Red Devils, they are apparently seeking to emulate the likes of Virgin Mobile, the operator that owns no physical network infrastructure but merely rents space from the larger incumbents.
Mobile virtual network operators (MVNOs) are all the rage and it is possible that United will have its own network and maybe its own branded phone.
Competition is driving prices down and technological changes are lowering barriers to entry: anyone can be a phone company and it is getting cheaper and cheaper to enter the market. In such a world, revenues and profits can only go one way - so why is Rupert Murdoch so keen to get in on the act? Why does he want to participate in a feeding frenzy that in all probability can only result in one winner - the consumer - and lots of losers - the phone companies?
Naturally, most phone companies don't accept they cannot emerge triumphant. They may have to trample all competition into the dust, but "we" will emerge as winners. Most of them seem to believe that while voice revenues are on a trajectory to zero, other products and services can fill the void. One of those new services is internet television (IPTV). Many people will be familiar with the current low-quality video offering available over the net: low connection speeds and inadequate streaming technology combine to produce jerky images that disappoint.
Inevitably, technology is improving to a point where IPTV is possible. Broadband speed is the key parameter: while most UK offerings have yet to reach the minimum speeds, we will get there soon.
The announcement on Monday by Walt Disney's ABC television to offer free episodes of programmes like Lost and Desperate Housewives over the internet will have sent a chill down Rupert Murdoch's spine. Suddenly, we can imagine a world where the makers of programmes are able to distribute them without recourse to anybody else.
Imagine the scene at Soho Square when the grandees of English football realise they can distribute live premiership football over the internet, on a pay-per-view basis, without having to give a cut to BSkyB. We are not there yet, but the day is drawing closer. All those TV satellites orbiting the planet may not be worth quite what their owners think.
What happens next is impossible to predict. In an attempt to keep some control over its business, BSkyB has embraced the enemy and will become a broadband supplier by the autumn. Already, thanks to moves by the likes of Carphone Warehouse, that response is beginning to look a little pedestrian. But if TV programmes are to be supplied over internet lines as well as - or instead of - satellite connections, then BSkyB has to be part of the new world.
If IPTV is to take off, we will have to upgrade our home PCs.
We will have to buy new hardware and software. At the moment, that looks likely to be routers made by Cisco and Microsoft software, but other providers will emerge.
The one company that spotted all of this relatively early was, surprisingly perhaps, BT. It has been rebuilding its business model around an internet platform and, with its Fusion product, embraced voice over internet (VoIP) technology. However, in the competitive world of telcos, the largest supplier of VoIP minutes in the UK is not BT but, according to some reports, France Telecom. Such is the nature of disruption: it can come from unexpected sources.
Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.
