Sam Chisholm stands down as Foxtel chairman, but stays on the board. Within ten days Telstra, Foxtel and the other shareholders, PBL and News Ltd, do a deal with Optus to try to improve the Pay TV group’s financial returns. Optus will sell the Foxtel Digital Service, the business that has short circuited Foxtel’s return to profitability this year.

The news was revealed late yesterday and reported here:

Telstra spokesman Michael Grealy said the deal was struck after an agreement was reached for Optus to fund the rollout of digital set-top boxes, rather than have Foxtel meet the cost. “Telstra is very happy that that has been achieved that way,” he said.

The deal also gives Optus access to customers in areas where it does not have cable because it will act as an agent for Foxtel’s satellite service, however an Optus spokeswoman said it would not be moving into territory covered by regional pay TV operator Austar.

That’s the nuts and bolts of a curious settlement to this nasty spat. Just why it was settled so quickly after the chairmanship changed and Telstra executive, Bruce Akehurst was given the gig, no-one is saying this morning.

Optus may have made some concessions, but is remaining mute on the upgrading of its broadband ambitions. Telstra is spending $220 million or so on upgrading its broadband service to a faster system with greater download capacity. Both upgrades have the capacity to isolate and surpass Foxtel’s digital network, which is slower than anyone else’s.

Primus and several other independents are also upgrading their systems to the faster broadband standard, thereby leaving Foxtel even more isolated. You’d have to think that Foxtel doesn’t rate highly on the Telstra radar anymore and that News and PBL are being hung out to dry.

Or is this some sort of funny plot for Foxtel to be spun off or sold out of Telstra prior to the T3 float to generate more cash for the major shareholder? PBL and News would be the logical buyers and controllers. They already co-operate through their joint ownership of Premier Media and Fox Sports and other Pay TV channels. But they would have to spend more money upgrading Foxtel to a sufficient standard where it could compete against the upgraded systems at Optus, Telstra, Primus, etc.

Optus will spend $30 million over the next couple of years upgrading its subscriber set-top boxes to take the digital signal from Foxtel. Foxtel will give Optus a greater revenue share and allow it to resell the pay TV service through its satellite interests.

That sounds a neat deal, but the soon-to-be-launched faster broadband service (called DSL2+) will undermine Foxtel, unless there’s a quick deal to spend more to upgrade its service to the same level. A change of ownership might help that decision.