UPDATE 2-BSkyB shrugs off rival's challenge with strong customer demand

Thu Oct 17, 2013 6:09am EDT

* It adds 111,000 broadband customers in quarter, year-on-year

* Revenue up 7 pct, in line with analysts' forecasts

* Shares rise to near 12-year high

By Kate Holton

LONDON, Oct 17 (Reuters) - Britain's dominant pay-TV provider BSkyB shrugged off the launch of rival BT's new sports service with strong customer demand for its TV and broadband services, sending its shares to a near 12-year high.

BT, a former telecoms monopoly, in August launched a new TV service showing Premier League soccer free to its existing broadband customers in a bold attempt to hold on to its core subscribers who had been moving to BSkyB in droves.

The offering is the biggest challenge to BSkyB since Rupert Murdoch launched the pay-TV group more than 20 years ago. . It had managed to grow during the economic downturn by selling more services to its existing base, such as broadband, as it became tougher to sign up new customers.

On Thursday the company, 39 percent owned by Murdoch's 21st Century Fox, said it had added 111,000 broadband customers in the three months to the end of September - the first quarter of its financial year - up 9 percent compared with the same period last year.

That number, which also includes customers in Ireland, is comfortably ahead of analyst forecasts of around 80,000.

The broadband additions means BSkyB now has more than 5 million broadband subscribers, fast catching up with BT on 6.8 million.

It also added 37,000 new customers to its TV offering, taking the number of new, paid-for subscription products sold in the quarter to 800,000, up 50 percent on the year.

The 37,000 TV additions was comfortably ahead of the 20,000 it added in the first quarter last year but that did not include those viewers who accessed Sky TV via Now TV, an online offering which enables consumers to pay for Sky for 24 hours.

SHARES RISE

Overall the group posted revenue and adjusted operating profit in line with analysts' forecasts, with revenue up 7 percent to 1.8 billion pounds ($2.9 billion).

The battle with BT took its toll on adjusted operating profit, which was down 8 percent to 285 million pounds due to the higher price it had to pay for Premier League soccer rights.

"With all the negative sentiment around potential BT Sport competition and its potential impact on BSkyB broadband net adds, we think the market will be comforted today by the better-than-expected broadband growth," JP Morgan said in a note.

Shares in the group were up 5.1 percent at 1002 GMT - their highest level since December 2001, giving it a market value of 14.7 billion pounds. They had tumbled in May when BT announced its free offer of sports to its broadband customers, in a direct challenge to the BSkyB business model of using premium programming to draw in customers.

BSkyB Chief Executive Jeremy Darroch said the group had been boosted by the record uptake of high-definition TV boxes, strong demand for on-demand viewing and the popularity of Sky Go which allows viewers to watch programming on the move.

Total viewing to its Sky Sports channels was up almost 15 percent on the same quarter last year, helped by a switch to show matches on an early Saturday evening instead of Saturday lunchtime.

"Given that BT and other key UK broadband players are yet to report, the market will need to wait to put Sky's broadband adds for the quarter into context," JP Morgan said. "While today's results are better than expected, it is only the first quarter and therefore we think too early to see any notable change in consensus estimates."

BT reports its results at the end of the month.

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