Wholesale tie-up will complete Sky’s quad-play in 2016 and is likely to be used to help convince competion watchdogs over Three-O2 merger
Sky has confirmed it will launch its own mobile network next year after signing a wholesale deal with O2, in a move that could help convince competition watchdogs that Hutchison Whampoa should be allowed to buy the mobile operator.
The deal will be seen as mostly defensive by Sky investors, as arch rival BT prepares its own attack on the market with the takeover of EE, and overturns the company’s long-standing aversion to mobile.
It expanded from pay-TV to offer broadband and home phone services but every time it considered a mobile network it demurred on the basis that mobile bills are typically personal rather than household expenditure.
But the impending arrival of BT in the market, together with recent moves by mobile operators to offer more ‘family plans’ that pool bills within a household, appear to have convinced Sky chief executive Jeremy Darroch to act now.
Sky will not launch offers to customers until 2016, although BT’s £12.5bn takeover of EE is not expected to clear regulatory hurdles until then either.
Saddled with debt from the recent takeovers of Sky Deutschland and Sky Italia, Sky would struggle to buy a UK mobile operator as part of the upheaval currently sweeping the sector. A wholesale deal will allow it to respond to BT without the massive outlay, although it will have less control over its costs and the network.
Paolo Pescatore of the industry analysts CCS Insight said: “Sky was forced down this route. It can’t afford to be left behind in the multi-play market.”
“For now, Sky is the undisputed leader in triple-play services. Without mobile, it was vulnerable in the future. Our research suggests that consumers want to buy multi-play services from a single provider if they can.”
EE is poised to join BT
Some analysts remain unconvinced about the consumer appetite for bundles of communciations services, despite of the industry’s current appetite for takeovers and partnerships. Virgin Media, the cable operator, has offered a ‘quad play’ of broadband, home phone, mobile and pay-TV for eight years but only 17pc of its subscribers take all four services.
Announcing his tie-up with O2 on Thursday, Mr Darroch was confident Sky’s marketing nous can convince customers to take mobile as part of its bundle of services.
He said: “Sky has a proven ability to launch new services, at scale. We know our 11.5 million customers trust Sky to offer them the best quality and choice and have an appetite to take more from us.”
“Through our partnership with Telefónica UK [O2], we can build on our expertise in content, innovation and service to launch a range of exciting new services and exploit the opportunities for growth in the fast-changing mobile sector.”
Sky believe it can sell mobile alongside pay-TV such as new drama Fortitude
The deal is a boost to O2 as its Spanish owner, Telefonica, holds exclusive talks to sell the mobile operator to Hutchison Whampoa, the Hong Kong-based owner of Three. Sky also held wholesale talks with Vodafone before opting for its rival.
O2 also recently signed a wholesale deal to provide TalkTalk customers with mobile service.
The Sky partnership is likely to be warmly welcomed by Hutchison as it prepares to face scrutiny of its plan to merge O2 and Three, reducing the number of mobile operators from four to three. In other European markets where similar consolidation has gone through, the strength of the wholesale market and so-called Mobile Virtual Network Operators (MVNOs) have played a vital role in securing competition clearance.
The biggest MVNOs in the UK currently are Virgin Mobile, based on EE’s network, and Tesco Mobile, a joint venture between the supermarket and O2.
Ronan Dunne, O2’s chief executive, said: “Sky understands the importance of a strong network and excellent customer experience and has made us a trusted partner to help deliver brilliant services.
“This will widen consumer choice still further and demonstrates the lively competitiveness of the UK market.”
Sky’s deal with O2 includes 2G, 3G and 4G coverage, and is understood to be a ‘thick’ MVNO, which will give it control over billing and customer care. In contrast, ‘thin’ MVNOs merely rebrand the host operator’s complete service.