UK pay TV operator and Telco BSkyB is to buy fixed line telephony and consumer broadband businesses of Telefonica UK in a £200 million deal. Under the terms of the agreement, BSkyB will pay £180 million for the acquired O2 and BE branded telephony and fixed broadband customers with a further £20 million dependent on the customer migration process.
The acquisition, which is subject to regulatory approval, should be completed in April 2013 and will see over half a million Telefonica UK's O2 and BE customers migrated onto BSkyB's unbundled network. The combined Sky broadband service will be the second largest broadband provider in the UK behind the incumbent BT. The combined companies ended 2012 with 4.8 million broadband subscribers, 0.33m ahead of the previous number two in the market recently acquired cable provider Virgin Media, and a 22 per cent market share.
Since it entered the UK market in 2006, BSkyB has been the fastest growing broadband and fixed-line telephony provider and ended 2012 with 4.2 million broadband households and 19.4 per cent market share. It has also established itself as the UK's most popular triple-play (broadband, telephony and TV) provider with over a third of its customer base (3.6 million) being triple-play subscribers. In addition, Sky Broadband unlimited and fibre customers get access to The Cloud, BSkyB's WiFi network in more than 10,000 locations.
For Telefonica UK, the deal will enable it to cast aside its weakening broadband customer base, which has been on decline for the past two years (it shrunk from 672,000 at the end of 2010 to 560,000 at the end of 2012) and focus on expanding its mobile network, including the launch of 4G. Telefonica has retained its wholesale fixed network as part of the deal. The company may use this network to help with its roll out of its 4G spectrum service which has a pubic coverage obligation.
However, BSkyB will struggle to retain some Telefonica UK's broadband customers that opted for the service for specific product offerings that BT and BSkyB did not offer on their networks. This will be more apparent for those customers who were subscribers to the packages with ADSL2+ Annex M, which allows for higher upload speeds, and static IP addresses. BSkyB will hope to transition some of these customers on to their VDSL product that offers both higher upload and download speeds than the traditional ADSL2+ connections.