Sky to launch mobile network as battle over telecoms intensifies

Sky is still a takeover target for Vodafone given the need to have a strong pay-TV offering

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The Independent Online

Vodafone was left looking exposed last night after Sky struck a deal to launch its own mobile telephone services with O2 in the latest frenzy of deals bringing media broadcasters and mobile operators  ever closer.

Sky will piggyback on the network of O2’s owner Telefonica UK, which agreed only last week to be bought by Hutchison, the Hong Kong owner of the Three mobile network.

It is one of a series of major deals in recent weeks that have seen companies jostle for position to be able to offer households bundled packages of fixed-line telephone, broadband internet, mobile and TV content. The move leaves only Vodafone on its own as a solo mobile and fixed line provider. But while the technology will all be running on O2’s phone mast and infrastructure, customers will see only the Sky brand, with billing and customer services provided by the Rupert Murdoch-dominated media company. The deal means that Sky will be able to offer content, fixed line, broadband and mobile services. Investors had been concerned about Sky being left being on the shelf after its arch-rival BT took over EE. That deal was seen as a direct threat to Sky as BT had already been encroaching on its home turf of TV and football.

However, the move is far less deep a commitment to mobile than that of BT, which is paying £12.5bn to buy EE outright. Sky did not have the financial firepower to launch such a bid, so has entered into a partnership with Telefonica UK, similar to that of Tesco Mobile.

Sky did not provide details of the financial terms of the partnership but said it would have wholesale access to 2G, 3G and 4G coverage over O2’s network and would be able to offer mobile services to customers on Sky bills from 2016. Some analysts said the move meant Sky could still link up with Vodafone at a later stage. Paolo Pescatore, at CCS Insight, said: “We still believe that Sky is a takeover target for Vodafone, given the mobile operator’s need to have a strong broadband and pay-TV offering.”

Other analysts said the pressure on Vodafone to act fast was slightly reduced by last week’s Hutchison bid for O2 because the easing of competition would inevitably mean that all companies would be able to put up their prices, protecting Vodafone’s profit margins.

Vodafone will continue with its existing relationship with Sky, offering Vodafone customers access to Sky Sports on 4G. But yesterday’s partnership was still seen as another missed deal for the UK mobile operator.

Sky’s chief executive, Jeremy Darroch, was bullish about its latest move. “Sky has a proven ability to launch new services, at scale,” he said. “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.”

Mr Darroch’s counterpart at Telefonica, Ronan Dunne, added: “We are pleased to welcome Sky to our roster of innovative, successful partnerships, through which we help partners grow their offer to customers. This will widen consumer choice still further and demonstrates the lively competitiveness of the UK market.”

More than 10 million homes in Britain subscribe to Sky and it has succeeded in selling a growing number of services to customers in recent years.