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Why did Sky buy Amstrad?

1/3/09

For the American readers I’d better explain: Sky is the major satellite TV broadcaster in the UK, it’s major rival is the cable company Virgin Media since Sky absorbed British Satellite Broadcasting in 1990. Officially it was a 50:50 merger but the two companies used different technologies and they went with the Sky one. The Sky offices and pretty much everything else. More Absorbaloth from Dr. Who than Station from Bill and Ted’s Bogus Journey.

The next big thing Sky swallowed was Amstrad.  If you are British and about fifty, Amstrad made crummy HiFi in chrome fronted boxes. If you are five years younger they made home computers and small business computers, killing the typewriter. And five years younger than that makes you think of Amstrad as the set-top box you got if you bought Sky’s service and didn’t get one from Pace or Thompson.

When Sky bought Amstrad it was like Vodafone buying Sony Ericsson. (I had to get to the mobile phone bit eventually). You have to wonder why they did it, particularly as they paid a premium and Sky never overpays for anything.

My theory is that  it was that to ward off Pace. Since Thompson had stopped making set-top boxes, Sky only had two suppliers, and if Pace bought Amstrad they would have been able to dictate price.

We could see the networks have a similar problem in mass market handsets. Up at the high end where there is Nokia, HTC, RIM, Samsung, Sony Ericsson, LG, Apple and others there is no problem, but down at the low end there is Nokia and a bunch of Chinese vendors, most of whom the big networks wouldn’t go near. The pricing of the cheap handsets is such that most people have given up. Networks often expect manufacturers to make a loss on the chap handsets and make it up on the expensive ones. They have killed their own supplier base.

There is a triangle of desires in mobile phone design as powerful as any love triangle. The design of a phone is forged between what the networks ask the manufacturer for, what the individual handset manufacturer wants to add to make their phones special and what that manufacturers rivals have done which needs to be copied to keep up.

When two align – say the manufacturer and network both want to add DivX – it makes it easier for that box to get ticked on the development budget. Sometimes regional variations come into play. GPS is mandatory on 3G phones in the US as they have to conform to E911 legislation. This says you have to ask a mugger to hold on for a couple of minutes while you get a satellite  fix, before they can hit you. In Egypt it’s illegal to sell a phone with GPS

So finding something which makes everyone happy is hard. Very hard. Well, actually it’s impossible if you want to be innovative.

The networks have an undue effect so things that they want, thinking you’ll spend money on them, like video calling and MMS jump to the top of requirements, while those that people want but which reduce network revenue fall off the bottom.

Chief among these is dual-SIM. The only reason customers want dual-SIM is so they can spend less. You can imagine just how much operators like that. So the manufacturers which rely on operators don’t make them. Well, except Samsung because they make everything.

This has left the way clear for the companies like Tattu and Hyundai to introduce dual-SIM. There is clearly consumer demand. Just type “Dual-SIM” into Ebay and you enter a wondrous world of devices you would never have imagined.

Ironically the networks killing of the big players in the mass market has left the space open for the small innovative ones. We’ll see more small innovative companies, albeit using factories in China but few of these will be big enough to get through all the horribly expensive approvals processes of the operators.

So when the operators turn into carriers – just bitpipes – they will blame the situation on lack of innovation in the low end, when it’s a situation they’ve fostered.

Cat Keynes publishes her thoughts on the mobile phone industry every Sunday at www.catkeynes.com you can read the column  the previous Friday by subscribing here. Follow me on Twitter here.

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