UPD3 Uncertainty Grips O2 and BE Broadband UK After ISP Sale Rumours

Mobile operator and ISP O2 UK (BE Broadband) has refused to “comment on rumour or speculation” concerning an alleged plan to offload its unbundled (LLU) fixed line Home Broadband business to another provider (possibly Sky Broadband [BSkyB]).

Last year was a difficult one for O2’s Home Broadband service, which reported several consecutive and widening quarterly declines in its fixed line broadband subscriber base (falling from 620,300 in December 2011 to 579,500 in September 2012). The issue has been fuelled by recent price hikes, confusion over O2’s usage policy and further delays to its plans for a new superfast broadband (FTTC) service (O2/BE is now the only major ISP without a superfast option).

Chris Stenning, BE’s Managing Director, admitted last September 2012 that they weren’t “making very good progress on fibre” and couldn’t even confirm whether or not the launch would happen in 2013 (here). This is crucial because O2’s fixed line broadband platform is also based off BE’s infrastructure.

At least part of the reason for the FTTC delay is because O2/BE has yet to complete its migration over to a new core network, which only began around the middle of 2012 (it was originally supposed to start in February 2012) and is expected to take 50 weeks to complete (i.e. completion around the middle of 2013).

BEBroadband’s June 2012 Statement

“For some time now, we’ve been working on a major project to overhaul BE’s ‘core’ network (the bit that we own, as opposed to the part we rent from BT), principally to enable the introduction of more advanced services, increase the bandwidth (across the core part of our network) and help prepare us for transition to IPV6. It will also increase the resiliency of our network, helping to minimise the number of customers affected when, from time to time, we experience service outages.”

But sources cited by The Register have suggested that O2 might be “squeezing all it could out of the fixed line service before potentially selling it off to the highest bidder“, which is something that the ISP has refused to categorically deny. El Reg further claims that BSkyB (Sky Broadband) have recently paid a visit to O2 but probably wouldn’t be ready to take over until after the current migration.

O2’s apparent unwillingness to establish a clear plan for its superfast broadband product, combined with their ever increasing focus on a new 4G (LTE) Mobile Broadband service, has left many customers to question the ISPs direction. As a result we would not be surprised if they chose to off-load their home broadband base, although it’s unclear whether this would be a complete divestment of the asset or a platform management change.

It’s worth remembering that O2’s home broadband service is still reasonably well rated, especially when compared with some of the markets biggest players, yet at the same time they seem to be struggling to stay competitive. O2’s main rivals now have both faster and cheaper services. The choice is thus a simple one, adapt or..

UPDATE 12th January 2013

A spokesperson for O2 has told ISPreview.co.uk that they’re unwilling to “add anything more” to the report and reaffirmed again that “this is rumour and we simply do not comment on rumours“. In the meantime we’ve been chatting to a former BE employee whom had some additional insight but we’ll need to explore it further before posting and most people have now given up work until after the weekend.

In our opinion a flat out sale seems less likely but if it did occur then O2 are surely one of the better candidates, although equally the operator might be exploring a platform change or it could all come to nothing. We are continuing to investigate through our various sources and hope to have more next week, if anything surfaces.

UPDATE 14th January 2013

Several O2 Wholesale customers (ISPs) confirm that there has been no indication of a pending sale at any of their recent meetings with the operator, one of which involved mapping out a strategy for the next 12 months. But big firms often keep early discussions, which may or may not amount to something, tightly under wraps until there’s something official to announce.

ISPreview.co.uk also queried the situation with Dana Pressman Tobak, Managing Director of new ISP Hyperoptic and an ex-BE Founder, whom said the situation was “interesting“, before adding a little more.

Dana Pressman Tobak, MD of Hyperoptic, said:

“We had heard that O2’s Broadband wasn’t fulfilling the internal expectations numbers wise and it certainly hasn’t improved. So we aren’t at all surprised by the rumour.”

Meanwhile a Sky Broadband (BSkyB) spokesperson has unsurprisingly confirmed that they “don’t comment on market speculation or rumour.” The feedback leads us to believe that any discussions, if they even existed, have not yet been taken seriously. None the less O2’s fixed line broadband platform is undoubtedly vulnerable and most likely open to interest from other ISPs.

UPDATE 14th Jan @ 8:49am

A source within BE/O2’s customer support has informed us that an announcement about the ISPs position on superfast broadband (FTTC) is expected to be made around late spring or summer 2013. The context suggested that an FTTC service would be launched but we must stress that this is unofficial and based on information that is still subject to change.