Jeremy Warner's Outlook: Deal with it: Sky is a company that prefers to invest in its future than pay out from its past

After a rocky start, things seem to be coming together nicely for James Murdoch at BSkyB. Despite increased competition from cable and the growing popularity of Freeview, Sky is piling on the subscribers, churn is falling, and not withstanding heavy marketing expenditure, there's even a useful 13.7 per cent rise in first-half profits. All that, and a 38 per cent increase in the dividend too.

Small wonder that Sky's youthful chief executive was feeling pleased with himself yesterday. Yet he should enjoy his moment in the sun while he can, for he's not entirely dispelled City scepticism about this company and its growth prospects quite yet.

On yesterday's evidence, the target of 10 million subscribers by 2010 looks easily achievable. It's the costs of getting there that the City worries about, with the company likely to have to drill down into ever more low-paying customers to keep the numbers moving in the right direction.

True enough, yesterday's figures don't really support this contention. Customer acquisition costs are not yet off the scale and through clever sponsorship and targeted marketing the company has managed very considerably to broaden its appeal beyond the stable diet of sport and Hollywood movie addicts. Yet delivering on the vision of premium content across a range of different platforms will require heavy investment.

Mr Murdoch denies plans for a Sky+ giveaway, similar to the set-top box free-for-all that enabled the company to sink its pay-TV competitor ONdigital. All the same, the rapid growth of this digital recording service already owes much to heavy discounting and a promotional giveaway of Sky+ boxes just before Christmas. It surely cannot be long before Mr Murdoch is persuaded to go the whole hog, an investment which according to some City estimates might end up costing the company more than ?1bn.

Then there's Sky's investment in broadband, enabling the company to offer the "triple play" of pay-TV, telephony and interactivity. This is being achieved at a fraction of the cost sunk into cable. Even so the promise of boundless quantities of interactive and content innovation won't come cheap. Sky has always been a jam tomorrow company, constantly investing in its future rather than paying out from its past, and there's little sign of it changing its spots.

Still from where I stand, Murdoch the younger - or is it older, for Rupert is still the chairman - looks to be getting the balance about right. Nobody yet knows how badly the broadband revolution is going to shake these established players of the media landscape, but if the transition is well managed, it ought to be more of an opportunity than a threat to Sky. That's certainly the way James Murdoch intends it.

The disingenuity of bonus statements

Yesterday's annual bonus statement from Standard Life was the usual mix of the positive, ridiculous and disingenuous. Thus it is that most policies reaching maturity will benefit from investment growth over the last year, annual bonus rates on conventional with-profits policies are held at previous levels, the value of a 20-year policy rose by more than 10 per cent, a 10-year endowment by even more - 12.3 per cent - and so on and so forth. Anyone would think it was time to uncork the champagne.

The reality is an altogether grimmer one. In fact, the value of a 25-year endowment policy maturing this year will be more than 25 per cent lower than the same policy maturing a year ago. The position may not be as extreme in other with-profits products, but the general trend is the same. Maturity values are a lot less this year than they were last year.

So how come Standard Life is able to give the bonus declaration such a positive spin? It's called marketing hype, and is ample demonstration, if this were needed, that this is an industry which still hasn't learnt to be entirely honest with its customers. Technically speaking, the claims are absolutely correct. If you'd cashed in your policy a year ago, you'd have got less than if you are cashing it in today. Yet with-profits policies are sold to be held to maturity, and maturity values are falling off a cliff.

Confused? Who wouldn't be. The with-profits concept of saving was invented for genuine enough reasons, but obfuscation has always been a cornerstone of its raison d'être. In this regard, the annual bonus declaration never fails to disappoint. The underlying position is that the policies are worth less and less with each passing year. The reason? The life offices were hopelessly optimistic with their past rates of payout. If you have over-promised to past generations of policyholders, then there is less money available for distribution to future ones, so maturity rates must decline.

The irony of this situation is that the salesmen used the apparently sensational rates of return implied by overoptimistic bonus declarations to past generations of policyholders as a marketing tool to rope in new ones. More recent generations are now paying the price.

The situation is made that much worse at Standard Life by the fact that new solvency regulations imposed on the industry by the Financial Services Authority forced the company to dump a significant part of its holding of equities.

As a result, policyholders have missed out on the full impact of the growth in equity markets these past few years. No wonder the with-profits form of investment is as dead as a dodo. The tragedy is that there is still an extraordinarily long tail of with-profits savings to work out of the system. For those marooned in this no-man's land, the industry's capacity to disappoint promises to know no bounds, unless you are silly enough to believe the disingenuity of the press release, that is.

Telecoms: distress consolidation again

For another example of the renewed meltdown taking place in the telecoms sector, look no further than yesterday's purchase of Your Communications by Thus. This deal brings together the telecoms networks of two utility companies, Scottish Power and United Utilities, both of whom thought it a bright idea a decade ago to exploit their regional monopolies by slinging some fibre-optic cable around their respective networks.

Scottish Power managed to sell half its stake in Thus at the top of the market. But United missed the boat entirely and has accordingly paid the price. Having invested nearly ?250m in the business, United is selling it for ?59m. There is the prospect of a further ?32m payment but this rests on the unlikely eventuality of Thus shares doubling in value in the next couple of years. All this is a long way from the ?200m to ?300m the company once hoped to get for these assets.

Worse, United has failed to achieve the clean break it so badly wanted. Forced to accept payment in shares, it's now lumbered with a 22 per cent in the combined entity, making it the biggest single shareholder. Under the terms of the deal, United Utilities is not allowed to start selling down the holding for at least a year, but the fact that it is likely to as soon as the lock-in ends creates an overhang which further undermines United's chances of receiving the ?32m top up payment.

All that said Bill Allan, Thus's chief executive, seems to have achieved a reasonable deal from his point of view. The price is plainly an excellent one compared to the crazy amount that Cable & Wireless paid for Energis. But he has also bought a business in freefall, battered by declining margins and mass customer defection as users switch from legacy voice and data service providers such as Your Communications to next generation internet protocol networks.

Mr Allan likens the old legacy networks to ice cubes melting in the heat of rapid technological and structural change. The question that only time can answer is whether he has managed to freeze the value inherent in Your Communications with this deal or will he be left with just a pool of tepid water.

j.warner@independent.co.uk