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UPDATE8 ISP O2 UK and BE Sell Home Broadband and Phone Service to Sky

Posted Friday, March 1st, 2013 (7:10 am) by Mark Jackson (Score 8,456)
o2 uk

Mobile operator O2 UK (BE Broadband), which is owned by Spanish multinational Telefonica, has today confirmed that their struggling fixed line Home Broadband and Home Phone service is to be taken over by arch rival BSkyB (Sky Broadband) for a consideration of £180 million.

The move, which was first rumoured during early January (here), will see BSkyB acquire O2 and BE Broadband’s entire consumer broadband and fixed-line telephony business. It will also turn Sky Broadband into the country’s second largest broadband ISP after BT and just ahead of Virgin Media.

But few will be surprised by the development. O2 (BE) have been bleeding subscribers from their unbundled (LLU) and BT-based Home Broadband service since December 2010, when the operator reached a peak of 671,600 customers. At the last count, in Q4-2012, O2’s related customer base had shrunk dramatically to total just 560,100.

Jeremy Darroch, Sky’s CEO, said:

Sky has been the UK’s fastest-growing broadband and telephony provider since we entered the market six years ago. From a standing start in 2006, we have added more than 4.2 million broadband customers. The acquisition of Telefónica UK’s consumer broadband and fixed-line telephony business will help us accelerate this growth.

We believe that the O2 and BE consumer broadband and telephony business is a great fit, with customers used to high-quality products and strong levels of customer service. We look forward to welcoming these new customers to Sky and giving them access to our wide range of high-quality products, great value and industry-leading customer service.”

Ronan Dunne, CEO of Telefónica UK, added:

Sky offers great value, totally unlimited broadband which includes unlimited fibre services. As we focus on delivering best-in-class mobile connectivity, including next generation (4G) services, we believe this agreement is the best way of helping our customers get the highest quality home broadband experience from a leading organisation in the market.”

Certainly customers have had a lot to be frustrated about. Past price hikes, routing problems, concern over network congestion (here), the continued lack of a viable superfast broadband product, drama over GoldenEye’s piracy letters (here) and efforts to disconnect heavy users (here) have all resulted in one big headache for both the operator and their customers.

On top of that O2/BE’s broadband platform has struggled with capacity problems and efforts to upgrade the network to a new and more capable core haven’t progressed as swiftly or smoothly as the management would have liked. Meanwhile Sky’s more capable unbundled network uses similar hardware to O2 (e.g. Alcatel’s Broadband Management Gateway) and thus in theory it should be a relatively painless task to manage their subscribers.

O2 has also needed to re-focus its efforts on their forthcoming 4G based Mobile Broadband network, which has always been the businesses primary focus and somewhat leaves Home Broadband without much direction for the future.

So what’s going to happen?

Sky will first pay a “consideration” of £180 million to Telefónica UK for the consumer broadband, home phone and line rental customers served by the O2 and BE. The related customers will then become Sky customers for those services on completion.

An extra contingent amount, not exceeding £20 million, may be payable dependent upon the successful delivery and completion of the customer migration process by Telefónica UK. Post completion, O2 and BE customers will be migrated onto Sky’s fully unbundled (LLU) broadband and phone network (reaches 84% of all UK homes and supports FTTC superfast broadband).

The acquisition itself, which will be funded from “existing cash reserves” and is expected to be “accretive to earnings per share in the second full year of ownership“, is due to complete by the end of April 2013 and is subject to regulatory clearance.

Sky, unlike O2, has recently been investing heavily to add new capacity to its broadband platform and thus today’s move is unlikely to cause too many headaches in terms of unexpected network congestion. On the other hand you can never be sure until it happens.

We are currently attempting to find out precisely how Sky intends to handle the service transition from a customer’s point of view. Many of the BE/O2 packages are different from Sky Broadband’s vanilla offerings (e.g. BE Pro offers faster 1.9Mbps upload and static IP addresses) and thus we’re keen to understand precisely what the new owner has planned.

UPDATE 7:55am

As we understand it the details are still being finalised and for the short-term (around 6 months or so) customers on O2 and BE should not expect any immediate changes to their current package or support. After this Sky will begin to migrate customers over to their own network in managed phases (expected to take around 18 months in total).

Sadly both sides say that it’s a bit too early to go into any kind of detail about the migration, thus we’re unsure what will happen to those customers whom have advanced packages with static IP allocations and faster upload speeds. Sky suggests that the majority can expect to benefit from their lower prices and FTTC options, although price isn’t the only factor here.

Customers will be contacted ahead of the migration to help them understand the options. We strongly hope that Sky will recognise how BE and O2 also had more advanced packages and options, which went quite a bit beyond the Sky Broadband Unlimited product (e.g. line bonding). But we fear they might not. Reminds us a bit of the UK Online acquisition.

UPDATE 8:38am

O2 have setup a web page with more information, albeit mostly already covered above in more detail:

http://www.o2.co.uk/broadband/broadbandchanges

UPDATE 11:57am

It’s interesting to note that the official announcement made no mention of O2 Wholesale, which supplies business clients like ISPs. Several of those ISP clients have now posted updates and been in contact to discuss the situation with us.

According to AAISP, “O2 Wholesale is being retained by Telefonica and will maintain its access to the network“. However Sky will be “taking over ownership and day to day operation of the LLU network” and “will integrate the current ISAMs into their network“. In other words “O2 Wholesale will become a customer of SKY with a wholesale agreement in place so that they can continue to provide wholesale services to partners as normal“.

Fluidata have also confirmed the same to us directly.

UPDATE 12:10pm

Telecoms analyst Ovum has made some interesting observations.

Emeka Obiodu of Ovum said:

The news of the takeover is significant on several fronts. Firstly, it makes BSkyB the second largest broadband provider in the UK. This strengthens the hand of BSkyB in the market as the company would now be able to boast of having a bigger TV customer base, and more broadband customers than its main rival – Virgin Media. Such a prospect will concern Liberty Global a bit when it moves to take over Virgin Media in February.

Secondly, the battle for pay-TV and broadband supremacy in the UK has now intensified strongly. BT, the largest broadband provider, has spent heavily to win TV rights, and earlier this week, took over ESPN’s UK and Ireland TV channels. Now BSkyB, the UK’s largest pay-TV provider, has moved swiftly to become the second largest broadband provider. Such a consolidation, in addition to Virgin Media, will undoubtedly convert the UK’s pay-TV and broadband markets into a three-way fight. It doesn’t have to be bad for consumers, but some may not like it.

Thirdly, for those who don’t like the consolidation of the market to three main pay-TV and broadband providers, this is the inevitable consequence of technology changes and intense competition. Local loop unbundling has largely run its course and any broadband provider that wants to remain relevant in the future will need to outline a path to fibre. But that costs money. And with retail prices so low, and the return on investment tough to earn, pure-play broadband providers will struggle to survive. The market is now left with players that are able to spread the cost of fibre across more services, with its attendant economies of scope benefits.

Fourthly, for O2, this is significant as it now puts its hopes for a broadband future on LTE, combined with Wi-Fi. In the recent auction it won spectrum in the 800 MHz band, which will be good for providing coverage, albeit with limited capacity. But it is interesting that it didn’t get spectrum in the 2.6GHz band, which would have been good for high capacity broadband over shorter distances. Whether this was a strategic choice or a result of being outbid remains to be seen, as Ofcom is yet to publish the bid history. However, it means that for its broadband services O2 will have to rely on 800MHz spectrum and its existing spectrum holdings (unless a rival is willing to trade spectrum) combined with the Wi-Fi push it instigated in 2011. Its own fixed line home broadband service is no longer an option.

Fifthly, this sale reduces the power of UK mobile operators in the converged space. At a time when telcos across Europe are intensifying efforts to offer converged (fixed, mobile, broadband, TV) services, mobile telcos in the UK are making themselves much more reliant on mobile. EE still retains a presence in the fixed telecoms space but its offering is increasingly infrastructure-light. Ultimately, this is a dangerous scenario as it might reduce the strategic maneuvererability of the UK’s mobile telcos in a converged future.”

UPDATE 12:23pm

BE has written to their customers (email and a posted letter to follow) in order to confirm the sale. Apparently a special web page, much like O2’s above, has also been setup with more details but the site is currently refusing to load due to heavy traffic.

http://www.bethere.co.uk/broadbandchanges

UPDATE 12:33pm

BE’s main site may be struggling but they have posted a blog update, although it doesn’t say much that we don’t already know.

http://blog.bethere.co.uk/2013/03/a-new-future-for-be-with-sky.html

UPDATE 4th March 2013 (9:03am)

At O2’s discretion some Home Broadband customers whom contact the ISP asking for a MAC (migration) code have been offered 12 months of free broadband service, while a few others have also been offered £100 rebates off their mobile bills.

However we would caution customers, especially those still under an on-going contract, not to jump ship just yet. At least not until O2/Sky have revealed their customer facing plans for the migration (expected by late spring 2013).

At present no major contract changes have “officially” been presented and thus it’s often best to wait until this happens as it would represent a material change to the terms and thus you would, in theory, be able to exit the contract without penalty. On the other hand a savvy customer could always argue later that such a material change was inevitable after last week.

Meanwhile AAISP are offering Ex-BE/O2 customers, specifically those whom are considering whether or not to adopt their Home::1 package, the ability to have the same size block of IPv4 addresses, as they had with BE, for “no extra charge“.

Another ISP, Fidonet, are also offering “unlimited” ADSL2 broadband to Ex-BE/O2 customers at £20 per month with the first 6 months at half price. Potential customers should quote offer code “BeSwitched” when subscribing.

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51 Responses
  1. Lester

    Doubt my BE Pro package will survive then :(. I don’t really want the Sky Unlimited option unless they give us the static IP and faster uploads. It might be cheaper but that’s not why I took the Pro service.

    Hurry up and give us some detail Sky!

  2. Jonathan Davies

    I’ve been with BE for a long time. Was always happy with the service but want fibre. now its 18 months before my service gets changed without my wanting it to? I will look at fibre available NOW, probably Plusnet.

  3. Rachann

    And with sky broadband you have to have their line rental, so all change or double the cost, and no static IP.

  4. Rachann

    PS

    Anyone know a good ISP?

  5. Sheffield Owl

    Glad I jumped ship from O2 last August…Long Live Digital Region.There is no way I would sign up for Sky BB

  6. Mike

    What will happen to people who are with BE Wholesale providers?

  7. DTMark

    In the future, the only ISPs will be BT, Sky, Talk Talk and Virgin Media.

  8. dragoneast

    Commercially, wasn’t this inevitable once O2’s bid was successful for the 4G licence with the national coverage obligation? No-one has a bottomless money pit. A mature market means specialisation, not a bit of everything; and we too often assume that broadband provision is some sort of charitable social service. It isn’t, it’s hard-nosed commercialism.

    • Yes and no. Right now Telco’s across Europe are actually intensifying efforts to offer converged (fixed, mobile, broadband, TV) services and to thus slash churn, yet mobile operators in the UK are making themselves much more reliant on a single service.

      Some analysts are already suggesting that today’s news presents a “dangerous scenario” (Ovum) by making O2 reliant on a single solution.

  9. dragoneast

    Interesting one Mark. I know we often look at Europe for an example (whilst trying to escape from it). But do different considerations apply in your home market (see BT in the UK where it tries to be in everything), compared to the foreign owners; especially when the recession has hit home markets as hard as it has? Retrenchment, or at least, consolidation, abroad, becomes the name of the game, and trying to shore (stitch?) up the home market?

  10. Flakey

    Im with O2 and Im glad this has happened, can now start looking for a new ISP. Going to have a good look through the ISP list here later. Have just clicked on the above link to see the O2 page. On the Q+A section theres no “What happens if I dont want Sky” question. Why do these people automatically assume every customer will migrate to Sky.

  11. Kyle

    I can’t see the point in Sky allowing (or Telefónica) wanting to keep hold of the wholesale business. I can’t see why O2W would want to resell Sky’s product, nor can I see why Sky wouldn’t want to target this base directly themselves.

    • dragoneast

      Just wondering: if there’s a need for regulatory consent might this be a condition, to maintain competition (even if it’s just a sop in the wider order of things)? That might be another reason why it’s all a bit vague for the mo.

  12. dragoneast

    I think there’s no Q&A about moving supplier because consumer contracts don’t conventionally provide for it on a sale of the business (and why should they – no sensible business can afford to restrict its freedom to manage). Sky are buying those parts of the business, the ability to move for a change of t&c’s materially to your detriment only comes into play, if at all, once Sky change the t&cs. They haven’t done that yet.

    In this privatised world you need to read your contracts!

    • Kyle

      It still amazes me how many people don’t. I often see people signing agreements or contracts, without even bothering to read the terms. They seem to be more focussed on selecting the ‘I agree’ checkbox in as few moves as possible.

    • It doesn’t amaze me at all. You simply get so used to seeing these MASSIVE long documents with tiny text, which are often written in ways that only a lawyer could fully appreciate, that it becomes easy to lapse into the “skip and tick” mentality of agreement.

      But as I’ve recommended in one of our older editorials, you don’t usually have to read everything. A good tactic is simply to use the web browsers “find” feature to hunt for key phrases or signs like “£”, “contract”, “charge” and or “traffic management” (plus a few others) and this usually reveals the most relevant bits.

    • cyclope

      Not as yet they haven’t but they will have to give all customers the opportunity to migrate to alternatives regardless of them being within a contract or not, those in contract should be allowed to leave without penalty , as the very fact that Sky will seek to take over the landline (FULL LLU, FMPF)does automatically put a customer at a detrimental disadvantage never mind a change in T&C’s which there is no question would be changed to sky’s T&C’s Once on their LLU network

      I remember those on UkOnline all where given the choice to migrate out or be assimilated onto sky, I doubt that there would of been anyone still within contract period ,as they did stop taking new customers probably longer than 12mths before the announcement that sky where closing them down,

  13. Tom W

    Correct me if I’m wrong. But Sky are a fully unbundled provider ? What happens to the (SMPF) customers who have just the broadband from O2, and their telephone service from another provider ? Will the telephone service be moved/migrated too ?

    • Sky does have the capability to handle SMPF but their current intention is clearly to migrate both O2/BE’s broadband and related phone lines onto their fully unbundled (MPF LLU) platform. At this stage nothing has change and so until they reveal a plan for end-users then we won’t know for sure what options will or won’t be available. Just be prepared for the worst.

    • cyclope

      Yes as mark as said they do/did have SMPF LLU in exchanges (ex Easynet.net) But it has been sky’s policy for all new customers to be Full LLU they have their newer SBVN LLU kit in most exchanges now,

      So unless your exchange for some reason does not have SBVN installed which would be unlikely,there’s no realistic chance of you getting a SMPF partial LLU service from them,Sky, profits before customers

  14. onephat

    Im a happy skybb subscriber. Im wondering at what point sky would consider a bit for a mobile operator? Or launch its own virtual network. Surely its the next step in their portfolio.

  15. Jonny

    I hate sky bsb, I’ve lived without sky tv for over a year and their blood sucking attitude towards bleeding every penny from you. Am not sure how to react or what I’ll do next. I hate with a passion everything about sky the company and will never ever go back to them. But I am still very sad Be* is coming to an end.

  16. keith

    Good riddance to them and their useless service. Looks like initially the UK Be office and the Bulgarian *splutter, choke* support will survive, until of course all the Wholesale providers wise up and take their business elsewhere also.

    Hopefully by the end of the year nobody will be left stuck of their broken network with rubbish routing and congested backhaul, if things go really well (depending on their contracted lengths) the wholesalers by Christmas 2013 will be taking their business elsewhere and the lousy UK BE staff along with the Bulgarians with their rubbish, dies mid conversation phone lines will all be out of a job also.

    As for the Usergroup surviving i doubt it. I can’t see Sky wanting them poking their unwanted noses in anywhere. Sky already have their own official and unofficial forums, they don’t need a bunch of self importants (many of which have slagged sky off on internet forums and recommended BE over them previously) coming along thinking they know everything but know nothing. Even more so when from what i understand more than a few members of the so called “BE” Usergroup are not even with BE anymore.

    Liars always gets what they deserves in the end. Bye, bye BE/O2 You will not be missed.

    • Matt

      “until of course all the Wholesale providers wise up and take their business elsewhere also”

      “wise up”? They’re a damn sight better than other wholesale ops, so suspect your comments are just because you are angry or bitter with no real knowledge of what they are like outside of being a retail user.

  17. RSK

    All the reasons given as congestion, routing problems etc that forced O2 to offload is all incorrect. O2 and BE broadband are still the best in terms of download speeds and faster access. Check with most of the current customers and would agree with this. It is the company’s vision which to be a core mobile player that has derived this call… so more likely a business call rather due to any technical difficulties..

    • Ignitionnet

      Indeed it was a business decision, fixed line broadband wasn’t making any money to speak of.

  18. cyclope

    @Matt, the wholesale product quality of service can differ,I have a o2 wholesale service, the latency is higher than the retail, there is also jitter present during office hours,This could be down to who supplies the service from LNS outwards or within the route taken to the pop /handover point

    • keith

      His attempt at a personal insult just illustrates what has been stated is true. why the EX-Forum manager of BE is still defending BE Broadband especially when he is now a Sky fibre customer anyway is anyones guess. I suppose it sums up BE fan mentality.

  19. Alan

    I get broadband from O2 but line rental from BT.Sky surely can’t force me to take their line rental too??

    • Timeless

      to my knowledge your only forced to take the landline if you go fibre.. (l happen to be on Skys fibre platform, so far lm happy with the service)

    • Bob

      Sky currently require you to take your Landline from Sky. Those on legacy products currently do not.

      I would guess that you will be given the choice of moving to a Sky line at no cost to you or of taking your business elsewhere.

  20. cyclope

    @Alan:No would be answer, Unless to agreed to be migrated onto Sky LLU , All o2/BE customers should be given plenty of notice, and the choice to leave penalty free, should they not wish to become a sky customer regardless of wether they pay line rental to BE/o2 or any of the other telephony providers who sell BTWLR
    As the majority of sky customers are Full LLU moving your landline would require your consent and would constitute a change in the T&C’s because O2 only supply broadband via LLU

    • Keith

      That is of course assuming a combination of BE and Sky and Openreach understand what product EACH customer is on and communicate properly among thereselfs when the major changes happen.

      People that have a BE/O2 Phone package and a BE/O2 broadband package i imagine Sky will just want to migrate both things over to the Sky network when the time comes. (can not see them allowing you to continue to have broadband and hand the line rental/phone part back to BT, they are going to want to make money not give it away after forking of 180Mil).

      People on just BE/O2 Broadband but phone is from BT SHOULD when the time comes be given the choice to either just continue having broadband from Sky or moving both things over to them…… Of course this actually assumes they know in the first place who your phone line rental is from, which unless im wrong will not be an easy thing to know Sky end as BE (i think O2 also) is not a Fully unbundled product (phone side of things is still plugged in to BT equipment rather than BE equipment to make it easier to understand)…. I can thus see issues occuring when the Openreach Bod goes to the exchange to switch the broadband from BE/O2 to sky (which at some point although it may be a year or two off is likely to happen) as they will not know unless they are given the right info whos line is supposed to be Partial LLU and whose should be Fully unbundled.

      If it were me personally id avoid the reliance on all 3 companies and just get a MAC before all the hassle occurs and move elsewhere

      They should as cyclone states give you notice if they intend to move your phone line and you should have the option to say No, but when effectively there are 3 companies involved all to some degree no matter how small have to communicate with each other and i predict mess ups-aplenty.

      Similar mess ups have occurred in the past when Tiscali/Talk Talk mergers have taken place and they have assimilated companies which were not Fully LLU.

  21. Bob

    Sky has the capability now to be able to mount a serious challange to BT with FTTC and probably FTTH. VM must be threatned by this as well. VM have failed to expand their system. There is only so far you can go with upselling the exitsing customer base

    Sky has the advantage of deep pockets and good marketing it also has a full product range ie Phone, Broadband & TV. I would be certain that Sky are looking at the economics of FTTH as a means of delivering there TV products

  22. cyclope

    @Bob: This buying of the customer base or should that be what will be left of it,cancellations have had another record amount of activity today

    Sky will be in no better position than they currently are now, To launch serious competition to BT they would have to drop the price of their FTTC add things like free static ip’s and not insist upon the requirement to be fully unbundled with them

    • Bob

      Sky’s pricing is very competative. It is a mainstream player basixcally catering for the redidential user. If you want more specific products you will have to go to one of the small niche market players. THat will come at a price though

  23. Bob

    Further consolidation is likely. I can see Talk Talk being taken over by Sky

  24. Bob

    Just to clarify the O2 WEb site now makes it clear your line will be moved to Sky

  25. Tracey

    I left Sky TV over two years ago and after being bombarded with phone calls and letters for the majority of those two years as part of their aggressive marketing campaigns I had to threaten them with harassment complaints before they would eventually leave me alone. Today I find out that I’m being sold back to Sky, and whats more, if I want fibre I have to have their phone line too.

    Nope, not me, contract cancelled and Plusnet will be here on Friday installing my nice new fibre connection.

  26. spud

    I spoke to o2 customer services today to ask for my mac code so that i could leave thier broadband because like everybody else on these forums i dont want to be with sky, o2 gave me a new 12 month contract for *** free *** broadband, which will still be free if sky takeover before it ends and my land line can stay with bt, it does not have to be moved over to sky

  27. Jenny Mauldin

    What provision will be made for customers who have a British Telecom landline, and not one with o2. I would not be prepared to change. Also who would pay the early termination charges from my contract with BT?

  28. John Salkeld

    I’ve been a satisfied O2 customer with BT phone line rental. I expect, once my current contract with O2 is over, Sky will offer me one of their ‘packages?’ I don’t want a Sky TV ‘package’ or Sky phone line rental. Sky do a broadband only deal but the cost is £19.38 per month – I currently pay £14.50 per month to O2. Migrating now looks like a ‘no-brainer.’ As my Phone line rental is with BT I will, reluctantly, migrate to BT broadband.

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