1 Comment

Summary:

The deal will make Sky the UK’s second-largest fixed-line broadband and voice player. It also makes it more likely that the O2 UK mobile business will be open for a merger with one of its rivals.

Telefonica building Madrid

British Sky Broadcasting Group (BSkyB) will buy Telefónica’s UK fixed-line broadband and telephony business for up to £200 million ($303 million), the companies announced early on Friday.

The deal, which is subject to regulatory clearance, should close in April. If that goes ahead, the customers will be moved off the O2 and BE Broadband brands and become Sky customers. Sky (40 percent of which is owned by Rupert Murdoch’s News Corp) would then become the UK’s second-largest ISP, behind BT and ahead of Virgin Media.

Telefónica will get £180 million for its broadband business, plus an extra amount — up to £20 million — upon the “successful delivery and completion of the customer migration process”.

Here’s what Sky CEO Jeremy Darroch had to say:

“Sky has been the UK’s fastest-growing broadband and telephony provider since we entered the market six years ago. From a standing start in 2006, we have added more than 4.2 million broadband customers. The acquisition of Telefónica UK’s consumer broadband and fixed-line telephony business will help us accelerate this growth.

“We believe that the O2 and BE consumer broadband and telephony business is a great fit, with customers used to high-quality products and strong levels of customer service. We look forward to welcoming these new customers to Sky and giving them access to our wide range of high-quality products, great value and industry-leading customer service.”

This deal is not hugely surprising, in that O2/BE has a shrinking customer base (as ISP Review notes, that base peaked at 671,000 customers and currently sits at around 560,000). However, it may prove to represent more than consolidation in the UK’s fixed-line market.

European mobile carriers are itching to carry out more mergers, particularly in highly competitive markets. The UK is about as competitive as it gets. With Deutsche Telekom and France Telecom having already merged their UK operations (formerly T-Mobile and Orange) into EE, I would now frankly be surprised if we didn’t see the newly mobile-only O2 UK merge with one of the others. Based on the complementary nature of their recent 4G spectrum wins, Vodafone would be a good fit.

This is shaping up to be a very exciting year in the UK communications market.

  1. Vodafone and O2 already have a deep network sharing deal in which they have divided the country in two and each of them controls and rolls out the radio access and backhaul networks in their respective halves (outside London where their networks are separate). I would say a full merger of Vodafone and O2 is extremely unlikely. There is certainly regulatory resistance at both EU & UK level to a merger from 4->3 but the operators spent much of the recent MWC lobbying about further in-market consolidation. If 4-3 was allowed it would be much more likely to involve the smallest operator, 3

    Share

Comments have been disabled for this post