Reported by the Financial Times today. Have posted in full as you would need to register to read it so have not posted a link.
Sky has approached Telefónica about a possible alliance with the Spanish telecoms group’s British mobile phone business, a move that would push the satellite group into the rapidly reshaping European mobile market for the first time.
The talks come as Sky’s major rival BT negotiates the acquisition of mobile operator EE, having decided against acquiring Telefónica’s O2. After that deal closes, Sky will be the only major UK broadband provider that does not also offer mobile phone contracts.
Sky and Telefónica have been talking since late 2014, said two people familiar with the situation, although one added that the discussions have been happening alongside similar ones between Telefónica and Hutchison Whampoa of Hong Kong about combining their British mobile operations.
Hutchison Whampoa, which owns the Three network, indicated to Telefónica that it could offer more than £9bn for O2 UK before Christmas, according to two people with knowledge of the situation, although both added that the talks did not progress. Sky, Hutchison Whampoa and Telefónica declined to comment.
Some analysts say Telefónica should get out of the British mobile market, and another option would be a deal with rival mobile and TV provider TalkTalk, said one person familiar with the situation. “In the medium term O2 UK on a standalone basis will struggle to compete with integrated players,” wrote analysts at Espirito Santo.
Sky is unlikely to acquire O2, according to a person familiar with the situation. The pay-TV company currently has net debt of more than three times its earnings before interest, tax, depreciation and amortisation following a £7bn European expansion.
Instead, its offer could be based around a broader partnership, combining O2’s mobile service and customer base with Sky’s pay-TV content, broadband and fixed-line telephony. In March 2014 Sky paid £200m for O2’s fixed line and broadband business, covering about 500,000 customers. Analysts have also speculated that a deal could involve the exchange of shares rather than cash, which would give Telefónica a stake in the combined business.
However, Nomura analysts said Sky’s “preferred response” would be a mobile virtual network operator agreement — or MVNO — where the pay-TV company could resell O2’s phone access.
Sky’s management has consistently argued there is little evidence that consumers want to purchase mobile phone contracts together with household broadband and pay-TV. Such bundles have, however, gained market share in Spain, where low prices have lured consumers.
The talks come as Sky is gearing up for battle against BT for the UK rights to broadcast Premier League football. Sky has built its leading market position in the UK by having access to premium content, including football, which analysts described as the “jewel in the crown” of the company.
But that position has been under threat from BT’s move into broadcasting Premier League games and could further be challenged if BT has a mobile platform to stream the games.
