Sky's mobile move could aid Hutchison, pile pressure on Vodafone

BSkyB became the latest provider of TV and fixed broadband services to throw its hat into the mobile ring in what is regarded as a largely defensive move, after the satellite company signed a wholesale agreement to use the network of Telefónica (O2) UK.

The company, which trades under the name of Sky in the UK, follows BT and TalkTalk by adding mobile voice and data services to an existing triple-play offer, although the company does not plan to launch the new services until 2016.

For some industry watchers, the move could prove beneficial to Hutchison Whampoa, which recently started talks with Telefónica on the potential acquisition of O2 UK for £10.25 billion (€13.6 billion/$15.3 billion). For example, regulators might be persuaded that there is sufficient competition from mobile virtual network operators (MVNOs) to allow the merger of O2 UK with Three UK to go ahead. The merger would reduce the number of UK mobile network operators (MNOs) from four to three.

Indeed, the provision of network capacity to MVNOs in Germany and Ireland was a critical element in securing European Union approval of Hutchison Whampoa's acquisition of O2 Ireland and Telefónica Deutschland's purchase of E-Plus in Germany.

For Vodafone UK, the fact that yet another fixed player plans to start offering mobile services is likely to put it under more pressure as it begins to look weaker in the face of strong so-called "quad-play" providers. Indeed, CCS Insight notes that Sky is already the market leader for triple-play services thanks to its established position in pay-TV, "and has been extremely successful in cross-selling its home communication services."

Meanwhile BT is in the middle of negotiations to buy EE, and TalkTalk has already formed an MVNO agreement to use the network of Telefónica UK. Should Hutchison also succeed in its bid to buy O2 UK, it will create the largest mobile network operator by subscriber numbers.

CCS Insight said it continues to believe there will be further moves in the UK to consolidate as providers jostle for position. "In our view, Sky remains a takeover target for Vodafone given the mobile operator's need for a strong broadband and pay-TV offering," the company said in a research note.

As for Sky's MVNO deal, CCS Insight said it is surprising that the first Sky mobile service will not be offered before 2016, "seemingly giving many of its rivals--particularly BT--a head start."

"We believe that the company should consider accelerating its plans, as many providers will be promoting their multi-play offers in the second half of this year," the research company added.

For more:
- see this release from BSkyB
- see this Reuters article
- see this Telegraph article

Related Articles:
Analysts: EC MNO merger precedents bode well for Hutchison Whampoa's UK play
O2 UK talks up potential consumer benefits of Hutchison Whampoa buyout
Hutchison Whampoa faces fight with BSkyB, TalkTalk to acquire O2 UK from Telefónica
BT's plan to buy EE raises questions about O2's future
TalkTalk signs MVNO deal with Telefónica UK in quad-play push

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