Kate Bulkley, Media Analyst.

Energis to target media market after telecoms deal with broadcaster

By Kate Bulkley

The Guardian

Tuesday November 18, 2004

The summer sell-off of the BBC's technology unit has finally started to show results for its purchasers, with a telecoms contract worth 30m a year going to the buyout consortium led by German engineering conglomerate Siemens and Energis.

Energis will create an upgraded national telecoms network for the BBC to shuttle its television pictures, voice tracks, internal data and many other forms of information as well as telephone calls among its studios nationwide. The network is due to be ready by 2006.

The 10-year deal comes in the same week as Ofcom's interim report into its investigation on the UK telecoms market. The report, published today, could demand greater transparency from BT, the dominant UK telecoms operator.

Energis and other alternative network telecoms companies would welcome rules to require BT Wholesale to offer the same services and terms to BT Retail, its customer-facing arm, as it does to outside competitors, especially in the increasingly price-competitive UK market.

"We will see broadband prices drop below 15 a month very soon," said John Pluthero, the chief executive of Energis. "That's a no-brainer."

The deal with the BBC is another step in Energis's rise from near-extinction just two years ago. The firm also hopes to use the BBC contract to build a bigger presence within the BBC and other media groups.

Energis recently acted as host telecoms firm for the BBC's trial of its new integrated media player (IMP) technology which will allow licence fee payers to download BBC TV programmes via a broadband link. No date has been set for the commercial launch of IMP.

Energis faced financial crisis in 2002, but led by ex-Freeserve boss Mr Pluthero and former Tory minister Archie Norman, the firm has staged a dramatic recovery and posted its first post-restructuring profit in June.

"Energis is in a classic three-stage recovery, with the first stage being extensive financial restructuring followed by increasing the capability of its network," says Julian Hewett, a principal analyst at consultancy Ovum.

"The next stage is to drive growth, and that will be the hardest part because there are too many players targeting business telecoms customers.

"This BBC contract is the kind of customer they should be going for, but it alone won't transform their business."

Another analyst, who declined to be named, said that the deal with the BBC is important but that "the issue for all these contracts is how they are priced, not winning them.

"A lot are loss-making in the first few years. The BBC is a very good contract to win, but there is a lot of price deflation in the market right now."

Energis has been working extensively with the BBC for a decade, but the value of previous work was only about half that of the new deal. In fact, the latest contract has made the BBC one of Energis's top three clients alongside Wanadoo and the National Grid company Transco.

The deal with Energis is part of the 2bn sale of BBC Tech nology to Siemens Media Services, made this summer and finalised last month.

At the time of the sale and the related technology outsourcing deal, the BBC said it expected to save about 30m a year for the duration of the contract with Siemens and its subcontractors, including Energis.

In addition, the deal with the BBC - won against stiff opposition from a rival bid by Accenture-BT - is an important step in Energis's attempt to return to the upper echelons of the competitive market.

"Over the next three years I would like to see the media sector represent 20% of our revenue," said Mr Pluthero. "Today it represents less than 10% of revenue, not counting the company's business with ISPs like Wanadoo."

Winning the BBC contract puts Energis in a good position to woo other major terrestrial networks such as ITV, who also need the cost savings and technical capabilities Energis has promised the BBC.

The new BBC network will have eight times the capacity of the current system. The goal is to make the BBC completely "tapeless", lowering the cost of editing and archiving.


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