Sky is to acquire Telefónica UK’s (O2) broadband and fixed-line telephony business in a move that will make the US giant the second-largest broadband provider in the UK.
Telefónica UK’s consumer broadband and fixed-line telephony customers, of which there are currently over half a million, will become Sky customers for those services on completion.
Sky will pay Telefónica UK for the consumer broadband, home phone and line rental customers served by the O2 and BE brands. It also may be subject to an extra £20m.
Ronan Dunne, CEO Telefónica UK, said: “As we focus on delivering best-in-class mobile connectivity, including next generation (4G) services, we believe this agreement is the best way of helping our customers get the highest quality home broadband experience.”
Jeremy Darroch, CEO at Sky, added the move would be a “great fit” between the companies.
The move is likely to concern incumbents Liberty Global, which recently announced the takeover of Virgin Media for $23.3bn (£15bn); and dominant broadband provider BT.
Rob Bamforth, analyst from Quocirca, said the moves to consolidate the market would benefit businesses and consumers. “It’s not happened before time, after BT it’s hard to see a true second and third-type player in the industry, as it dominates around 80% of the market.
“Although we will see a reduction in competition, with fewer competitors, the competitors that remain will have more clout. He added: “It’s hard as a small provider to compete with BT, as seen in the BDUK market funding issues.”
Emeka Obiodu, telco strategy analyst at Ovum, said the sale by O2 was significant as the company has staked its future on mobile internet services.
“In the recent auction, O2 won spectrum in the 800MHz band, which will be good for providing coverage, albeit with limited capacity. But it is interesting that it didn’t get spectrum in the 2.6GHz band, which would have been good for high capacity broadband over shorter distances. Whether this was a strategic choice or a result of being outbid remains to be seen, as Ofcom is yet to publish the bid history.
“However, it means that for its broadband services O2 will have to rely on 800MHz spectrum and its existing spectrum holdings (unless a rival is willing to trade spectrum) combined with the Wi-Fi push it instigated in 2011. Its own fixed line home broadband service is no longer an option.”
The acquisition is due to be completed by the end of April 2013 and is subject to regulatory clearance.