BskyB puts its head in the Cloud

Last week BskyB announced that it has reached agreement to acquire The Cloud Networks (“the Cloud”) – a European Wifi provider – for “less than £50m”. For the year ended 31 December 2009, the Cloud is reported to have net assets of £17.9m, but it seems no profits to report.  I have been struck by how little comment has been made about this deal which I regard as both interesting and strategically significant.

Who are the Cloud?

The Cloud was founded in January 2003 and today it has 22,000 WiFi hotspots in 7,000 locations across 12 European countries. In Feb 2005 The Cloud acquired Airnyx in Germany, in July 2005 Net Chek-in was a further German acquisition.  This was followed in December 2005 by Canova Wireless.  GANAG, a German hotel-specialist WiFi provider was bought in Jan 2008. (Source: Wikipedia).

Financing

The company has had three rounds of finance.  In July 2004, at a time when the company had 4300 hotspots in the UK, 3i and Accel partners invested a “significant” amount of money.

In 2007 the company raised £5.3m and a convertible loan of £1.5m from Accel Ventures and Provide Venture Partners, a Swedish fund.

A third round of finance was secured in October 2008.  The company raised €15m (£8.5m).  Ferd Ventures, the Norweigan investor put up €7.25m with existing investors Accel and Provide Venture Partners collectively matching this.  GP Bullhound, the Cloud’s corporate financiers also invested €300,000.

The acquisition price suggests that investors have made a reasonable return but this has not been a stellar investment. It is perhaps significant that in an infrastructure dependent business such as this, the capital required to achieve scale is significantly higher than in a web-centric or intellectual property centric (software) business, for whom scalability is easier to achieve on a £ for £ basis.

Why is this a significant deal?

Despite its significant footprint, the Cloud was struggling to reach profitability – it had the hotspots but lack direct access to a significant customer base.  Its main competition (in the UK) was BT OpenZone who have the customers to put across its network and more recently O2.

For BskyB this acquisition is a tacit acknowledgement that TV and satellite/cabele connections are really yesterday’s news.  In the future data/video/news will increasingly be accessed though mobile devices and in order to reach the multiple platforms – smart phones, tablets and laptops – BskyB needed to control a means of connection to these devices which they can bundle or sell to their customers.

I suspect that they will inject substantial capital to improve the reach of the WiFi network and take BT on with a competitive offering.  This should be good news for customers as WiFi access should now move towards commodity pricing and general availability.  For BskyB the money is not in the WiFi network but in the overall subscriptions to their content services to their 10 million UK customers, which they can now offer across a broad spectrum of devices not just TV.

One week after the deal (16th January 2011) O2 has announced that it is launching a 15,000 strong nationwide network of public hotspots, free to all users whether you are an O2 customer or not. They have said that the network will provide speeds up to 24Mbps and a fair use policy of 10GB per month.  This puts O2, BT Openzone and The Cloud into a three way competitive land grab.

Already since the deal, the Cloud Managing Director Naunton Dickens announced that the Cloud was going to make WiFi available free in the City of London for upto 15 minutes per day.  This is not as generous as the O2 announcement but clearly indicative that the competitive landscape has changed significantly in the past week.

It will be interesting to see in the near future whether BskyB announces any significant upgrades to the network or explains its plans to move to higher WiFi speeds and bandwidth which will be needed to provide significant rich media streaming services.

One thing is clear to me, this is a clear milestone in the evolution of public mobile data access and I look forward to a brighter and more connected future because of it.

What do you think?  Please leave me a comment and if you like this, please RT.

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