Five ways Sky’s O2 merger could change the UK market

30/01/2015

The UK satellite and triple-play provider Sky ntends to launch an MVNO on O2’s network in 2016; the deal includes LTE. Martin Scott, Head of Analysys Mason’s Consumer Services research practice, provides the following thoughts on the announcement.

• This move will leave Vodafone and TalkTalk with more-apparent underdevelopment in their portfolio. With a potential tie-up between EE and BT in the works, this move further evolves the UK telecoms market into one of a limited number of converged ‘big hitters’ with Vodafone and TalkTalk left with underdeveloped service portfolios: Vodafone has indicated unrealised aspirations in the fixed consumer market in the UK and TalkTalk has successfully sold mobile to only 9% of its customer base to-date.

• Sky could become a market disruptor, especially if BT’s appetite for change is dulled by the acquisition of EE. BT has a desire for disruption: it has followed the launch of BT Sport with an ‘inside-out’ business model for mobile operations, with the fixed network playing a leading role in supporting and delivering mobile services. By acquiring EE, BT would become the largest fixed operator and one of the largest mobile operators, with little incentive to disrupt the quad-play market (it would have the most to lose). Sky has previously proved its ability and willingness to disrupt the telecoms market (notably its low-price high-speed broadband services); quad-play, and converged fixed-mobile services, could be Sky’s next logical move.
• Sky may take a lead from France. Sky may wish to look to French operator Iliad (‘Free’) for inspiration. The operator doubled its revenues over the course of two years following the launch of disruptive loss-leading mobile services that were counterbalanced by an upswing in take-up of its highly profitable bundled fixed double- and triple-plays. Sky Go, and its content portfolio more generally, will work to Sky’s advantage in positioning Sky as a quad-play leader.

• Sky’s move may be seen as defensive or disruptive. Sky’s ability to disrupt, along the lines of Iliad or indeed potentially BT, will be fundamentally dependent on the wholesale terms that it has established with O2. Launching mobile services will certainly aid Sky’s defence against stronger converged plays from Virgin Media and BT in 2015 and beyond.

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