British Sky Broadcasting Group (BSkyB) has agreed to buy Telefonica UK’s O2 and BE consumer broadband and fixed-line telephony business in a deal worth up to £200m.
BSkyB claims the deal, which comes on the heels of Liberty Global’s US$23.3bn…
British Sky Broadcasting Group (BSkyB) has agreed to buy Telefonica UK’s O2 and BE consumer broadband and fixed-line telephony business in a deal worth up to £200m.
BSkyB claims the deal, which comes on the heels of Liberty Global’s US$23.3bn (£15.4bn) acquisition of Virgin Media, will make it the nation’s second-largest broadband provider behind incumbent BT.
BSkyB will pay a consideration of £180m to the UK unit of Spain’s Telefonica for the more than half a million consumer broadband, home phone and line rental customers served by the O2 and BE brands.
An additional amount of up to £20m may be payable upon Telefonica UK’s successful completion of the customer migration process. O2 and BE customers are to be moved onto BSkyB’s fully unbundled network, which reaches 84% of UK homes.
The acquisition, subject to regulatory clearance, will be funded using existing cash reserves and is expected to be accretive to earnings per share in the second full year of ownership, BSkyB said in a statement announcing the deal today. The deal is expected to close by the end of April.
Upon completion of the deal, BSkyB’s subscriber base, which stood at 4.2 million at the end of 2012, will rise to 4.7 million. Incumbent BT has about 6.6 million subscribers, while Virgin Media has about 4.5 million.
London-listed BSkyB said the deal will help the company meet growing demand for multiple products.
“Sky has been the UK’s fastest-growing broadband and telephony provider since we entered the market six years ago,” CEO Jeremy Darroch said. “The acquisition of Telefonica UK’s consumer broadband and fixed-line telephony business will help us accelerate this growth.”
Emeka Obiodu, a telecom strategy analyst at Ovum in London, said the deal is “significant on several fronts” in light of the fact it reduces the UK market to three main broadband and pay-TV providers: BSkyB, Virgin Media and BT.
The takeover will strongly intensify competition for broadband and pay-TV supremacy in the UK, he said, noting that it is bound to be of concern to US-based cable giant Liberty Global, which moved to acquire Virgin Media in February.
“BT, the largest broadband provider, has spent heavily to win TV rights, and earlier this week, took over ESPN’s UK and Ireland TV channels. Now BSkyB, the UK’s largest pay-TV provider, has moved swiftly to become the second largest broadband provider. Such a consolidation, in addition to Virgin Media, will undoubtedly convert the UK’s pay-TV and broadband markets into a three-way fight. It doesn’t have to be bad for consumers, but some may not like it.”
In Obiodu’s view, technology changes and intense competition have made in-market consolidation inevitable, saying broadband providers need to “outline a path to fibre” to remain viable.
“The market is now left with players that are able to spread the cost of fibre across more services, with its attendant economies of scope benefits”.
Another consequence of the deal, Obiodu noted, is that it means O2 will have to rely on LTE spectrum and Wi-Fi to secure its future in broadband, unless a rival is prepared to trade spectrum.
The deal also reduces the power of UK mobile operators in the converged space, he said, pointing out that they are bucking the European trend by becoming more reliant upon purely mobile services.
“Ultimately this is a dangerous scenario as it might reduce the strategic manoeuvrability of the UK’s mobile telcos in a converged future”.
