Report: BSkyB hires advisers in reaction to BT merger moves

BSkyB (Sky), apparently spooked by the recent flurry of merger speculation sparked by BT, has reportedly hired investment bank Lazard to explore possible deals that could also allow the broadcasting group to take part in consolidation of the UK telecoms market.

The Financial Times reported that Sky plans to assess what recent events mean for the media sector, and whether it should consider an acquisition, a tie-up with a UK operator, or bidding for more TV football rights. A spokesman for Sky declined to comment on the report.

Plans by rivals BT and TalkTalk to offer mobile services as part of "quad-play" bundles of mobile, fixed voice, broadband, and TV plans will leave Sky as the odd one out among the major UK broadband providers. Virgin Media already offers mobile plans through the mobile virtual network operator (MVNO) Virgin Mobile.

Citing unnamed sources, the FT added that Sky has no plans to buy either EE or O2 UK, which are in talks with BT over a possible merger. Hutchison Whampoa is also reportedly interested in buying one of the two UK mobile operators to shore up Three UK.

Reports that Vodafone UK is also eyeing up Liberty Global, which owns Virgin Media, will have caused further concern at Sky.

Indeed, CCS Insight warned in a research note that BT's interest in buying a mobile network operator "illustrates its strong ambitions in multiplay and should serve as a clear warning to UK rivals" including Sky, Virgin Media and Vodafone.

Sky CEO Jeremy Darroch said during the company's first-quarter results announcement in October that the company always remains open to opportunities, and that quad play "is something that we keep a close eye on". However, he also said that existing quad-play offers on the market are "very much driven by the providers who want to extend their offering, rather than, I think, any significant demand from customers."

However, CCS Insight said its research suggests there is a clear appetite for multi-play services: "Our recent survey of 1,000 UK consumers indicated that a third of households already take three or more services from the same provider. Of those that do not, over 60 per cent would consider signing up to a multiplay package, with lower cost and convenience cited as the main reasons."

Meanwhile Deutsche Bank has told Sky not to panic: according to a report by the ShareCast news service, analysts from the banking group say Sky's customer base has not typically demanded integrated fixed and mobile services. Instead, Deutsche Bank suggests Sky would be better served by expanding its existing partnership with Vodafone, which already sells Sky Sports content via its Red mobile plans.

"This is a powerful combination and one that can go further ... It still looks like the most logical way to address any nascent consumer pull for quad play whilst avoiding major capital commitment," said Deutsche Bank research analyst Laurie Davison, ShareCast reported.

BT kicked off this latest round of consolidation speculation after it confirmed in November it was in early discussions with the respective owners of EE and O2. It is still far from clear which operator--if indeed the talks actually result in a deal--would be snapped up by the former incumbent, with EE seen as the better fit but O2 UK as the path of least resistance.

"In our view, EE would represent a more attractive asset for BT. However, a deal for O2 would be more straightforward, less expensive and likely to encounter fewer regulatory hurdles," said CCS Insight.

For more:
- see this Financial Times article (sub. req.)
- see this ShareCast article

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