The acquisition serves two main purposes for Sky:

• As a competitive response to ISPs rolling out WiFi networks, offering hotspot access as a value-added service bundled with broadband subcriptions.

Nationwide hotspot access offered at no extra cost to broadband subscribers by the likes of BT and, in future, O2, has put pressure on rival ISPs to offer similar services within their portfolios. Sky's move to align with competitors should help maintain customer loyalty and its position as 4th largest fixed broadband provider behind BT, TalkTalk and Virgin Media, with 3.0m subscribers at year-end 2010.

However, the cost to ISPs of acquiring, deploying and maintaining WiFi networks (or paying WiFi operators for wholesale access), will come on top of existing fixed network access and backhaul fees and the cost of providing a string of other value-added services (e.g. e-mail, PC security, online storage, online video and music services). With, at least in Sky's case, little or no expected revenue from increased subscription or usage fees for hotspot access, providers moving to WiFi initiatives may expect margins to tighten still further, particularly concerning in a fiercely price-competitive broadband market such as the UK.

• As a complement to Sky Anywhere launch, enriching appeal of TV and broadband subscriptions by widening content and network availability.

Sky's acquisition is intimately tied to its enhanced pay-TV proposition, Sky Anywhere, which responds to increasing user demand for access to programming outside the home, driven by a proliferation of broadband and mobile-enabled laptops, smartphones and tablets (e.g. Android smartphones, iPhone, iPad). The deal should help Sky become a leading all-in-one content and access provider, while supporting its efforts to boost customer ARPU by encouraging more TV customers to take broadband and/or fixed telephony (3-play at 24% of customers at year-end 2010).

On a technical level, based on The Cloud's claims to offer considerably faster actual download speeds (3.5Mbit/s) than realistically achievable via 3G mobile networks, Sky should be able to provide higher-quality, more bandwidth-intensive video streams with more reliability to its customers connecting at its newly acquired WiFi hotspots than it can to users accessing Sky content on the move via mobile networks.