Sky and Vodafone UK in Possible Merger or Joint Collaboration Talks

Last week’s speculation that BSkyB (Sky Broadband) could potentially merge with O2 or Vodafone UK (here) might have been based on some truth. A new report indicates that Vodafone and Sky have held joint high-level talks concerning a collaboration against BT, which could take any one of several different forms.

According to the Sunday Times (paywall), “senior sources” have told the newspaper that both operators are looking to build a better defence against BT, which has recently begun to tackle Sky on its home turf (TV) by offering some of the same content (Sports – Premier League Football etc.) for free to their existing broadband subscribers. BT are also expected to launch some form of 4G based mobile service, with EE’s help, later this year but have remained coy about the specifics.

Vodafone could gobble Sky if it wanted but for now the two appear to be exploring some form of collaboration, which could involve an agreement for Sky’s sports and movie channels or a new broadband service of some sort. However, the idea of rolling out an alternative fibre optic broadband network has sadly been deemed “unlikely” to happen (this doesn’t mean it won’t).

It’s interesting to note that Vodafone closed its own ‘At Home‘ fixed line consumer broadband service in 2011 after failing to make a success of it (here), although they recently reacquired a significant national LLU broadband and business focused fibre optic network when they gobbled Cable & Wireless (here).

But since then Vodafone has shown no real interest in getting back into the Home Broadband market (except as a supplier) and nor does it have a TV service (though it does offer some Sky TV content via Mobile Broadband), which isn’t so unusual for mobile operators in the United Kingdom. O2 has similarly failed to make a Home Broadband service work and thus sold their customers on to Sky. Meanwhile Three UK remains purely mobile focused and EE is still struggling to make a long-term success of their fixed line platform.

Suffice to say that Vodafone, while no doubt keen to take on the other quad-play providers, has so far tended to stick to what it knows best and we’d be surprised if that changed. We can however see scope for new capacity supply deals and mobile services, which would make Sky a quad-play provider. Meanwhile Sky’s existing LLU broadband platform appears to be superior to the one that Vodafone peddles to other ISPs. In any case no deal has been reached and the talks are said to be continuing.

As an important side note, it’s worth mentioning that Vodafone recently got around £50bn ($84bn) from the sale of their American business (i.e. a 45% stake in Verizon Wireless). This means that there’s plenty of cash floating about to do something radical but right now it’s all just the usual rumours and speculation. Take with a pinch of salt.