British Sky Broadcasting (BSY) reported a great first fiscal quarter, and we are maintaining our fair value estimate. A quarterly revenue increase of 14.7% led the way. Even after adjusting for the 2% gain from its Living TV acquisition, this was substantially above the 7.2% growth we were previously projecting for the full year. BSkyB added 96,000 pay television subscribers, bringing its total to 9.956 million. We think this puts BSkyB's goal of 10 million pay TV subscribers by the end of December well within reach. The firm also had its best quarter in two years in broadband and telephony, adding 178,000 and 203,000 customers, respectively. Over half of its new subscribers in the quarter signed up for the triple play of television, broadband and telephony, increasing its triple play base to 23% of its subscribers. With the higher percentage of triple play customers, and the continued growth of additional services such as HDTV and multiroom, BSkyB increased its annual average revenue per user, or ARPU, by 9.6% year-over-year, to £514. Going forward, we expect the firm to continue its focus on increasing ARPU, including by selling additional products and services to existing customers, than by adding new television subscribers.
In 2004 when BSkyB announced its goal to reach 10 million customers by the end of calendar 2010, the stock dropped precipitously. At the time, investors didn't believe it was achievable without ruining margins. However, that goal is about to become a reality, and margins are back on the rebound after a few years in decline. The majority of the margin decline BSkyB experienced actually came from entering the broadband and telephony markets, rather than from promotions to attract television customers. Initially, the broadband and telephony businesses lost significant amounts of money, but reached breakeven levels by the end of fiscal 2010. As these businesses become more profitable, we expect margins will continue to increase. For the quarter, EBITDA margins came in at 21.5%, just below our expectation of 21.9% for the full year, but up from 21% during the year-ago period.
Though we're impressed with BSkyB's performance in the quarter, we don't think the current rate of revenue growth is sustainable. If the firm can maintain its momentum, however, we think News Corp (NWS) will likely need to raise its offer to acquire the remaining portion of BSkyB it doesn't already own. As far as the potential acquisition goes, BSkyB expects News Corp. to officially file with the European Union for regulatory approval in the near future. Vocal opposition to the acquisition continues to grow in the UK, however, and we expect a long review process before any approval is given.
