UK-based satellite broadcaster BSkyB has agreed to buy Telefonica’s local consumer fixed line businesses in a deal worth up to £200m.
BSkyB said the deal, which comes on the heels of Liberty Global’s US$23.3bn (£15.4bn) acquisition of UK…
UK-based satellite broadcaster BSkyB has agreed to buy Telefonica’s local consumer fixed line businesses in a deal worth up to £200m.
BSkyB said the deal, which comes on the heels of Liberty Global’s US$23.3bn (£15.4bn) acquisition of UK cableco Virgin Media, will make it the nation’s second-largest broadband provider behind incumbent BT.
It will see BSkyB pay Telefonica an initial £180m 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, stated BSkyB. It expects to close the deal by the end of April.
Upon completion, BSkyB’s broadband subscriber base, which stood at 4.2 million at the end of 2012, will rise to 4.7 million. Incumbent fixed line group 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,” said its CEO Jeremy Darroch.
“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”, as 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 will concern US-based cable giant Liberty Global, which moved to acquire Virgin Media in February.
Obiodu said: “BT, the largest broadband provider, has spent heavily to win TV rights, and earlier this week [on 25 February], 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.”
According to Obiodu, technology changes and intense competition have made in-market consolidation inevitable, and 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,” he explained.