The Motley Fool

Telstra and News Corp’s secret broadband deal stalls

Foxtel, owned by Rupert Murdoch’s News Corp (ASX: NWS) and Telstra (ASX: TLS), has made plans to launch a triple play in the Australian broadband market, but negotiations seem to have stalled.

The pay-tv operator is Australia’s most profitable media company, reaching 30% of Australians, but the triple play would offer broadband, pay-tv and telephony in one package – a strategy aimed at improving its market share.

Under the two owners’ shareholder agreement, Foxtel cannot launch a broadband service without the approval of Telstra, which controls around 47% of the Australian broadband market. It would likely approve the offering on the condition it was the wholesale provider for Foxtel – something some analysts believe will put Foxtel at a competitive disadvantage when the NBN is rolled out.

Instead of paying the NBN Co for direct access to the fibre optic network, Telstra will be able to charge a price as a wholesaler between the two companies, putting Foxtel at a disadvantage to competitors.

Foxtel has considered this type of offering because of increased competition from iiNET’s (ASX: IIN) Fetch TV, Quickflix (ASX: QFX) Play and huge international internet-based broadcasting services such as Netflix (NASDAQ: NFLX) and Hulu. Foxtel has already begun to counter the increased competition by implementing a new service called Presto, but it might prove too little too late unless they can attract customers with their unique offering.

According to The Australian Financial Review, discussions have broken down between Telstra and News Corp because of the uncertainty surrounding the NBN and the price its owner would charge the Telco for access.

Foolish takeaway

Australia’s market for internet-based broadcasting is largely untapped and companies could stand to draw massive amounts of revenue from the industry. It would seem however that the arrival of Netflix and Hulu is the force to be reckoned with and unless negotiations can progress, they risk being left behind.

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Motley Fool contributor Owen Raskiewicz does not have a financial interest in any of the mentioned companies.

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