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UBS Analysts Speculate on BSkyB Merger with Vodafone or O2 UK

Tuesday, January 14th, 2014 (3:14 pm) - Score 2,327

Global financial services firm UBS has triggered an uplift in BSkyB’s (Sky Broadband) stock price after suggesting that the company could merge its European pay-TV assets to form Sky Europe and or then pick-up a mobile operator by merging O2 (Telefonica UK) or Vodafone UK into their operations.

Political nickers have a tendency to get in a twist whenever BSkyB and the word “merger” are muttered in the same sentence, although a report on Sharecast (spotted by Thinkbroadband) sees UBS suggesting that Fox’s EU pay-tv assets might be able to get around this by keeping BSkyB listed and having its “operating assets injected into Sky Europe in return for a majority stake in the larger entity“.

The highly speculative report suggests that concerns over the impact of the BTSport TV content, which is being offered for free to BT’s existing broadband subscribers, might be overplayed because UBS anticipates BSkyB and BT reaching some form wholesale agreement to share access during 2014. Likewise the potentially huge impact of Sky’s new services, such as NOW TV, might also have been ignored.

UBS Statement

We think trading at Sky (BSkyB) will remain resilient despite competition from the new BT Sport channel. We do not think the economics for BT Sport stack up and expect Sky to agree a wholesale deal with BT on sports at some point in 2014.

We think investors have overlooked significant growth from new initiatives such as Adsmart, NowTV, Sky Go Extra and Entertainment Extra+ that could add £212m to profits by 2018.”

But perhaps the most interesting suggestion is that Sky Europe could then add a mobile phone and Mobile Broadband solution to become a quad-play operator via scooping up Vodafone or O2 UK. Sky’s arch rivals, Virgin Media and TalkTalk, have already branched out into the quad-play market with some success and thus such a move would not come as a shock.

On the other hand many mobile operators, such as O2 (sold its home broadband customers to Sky in 2013) and EE, have struggled to make the triple or even quad-play mix of mobile, phone, home broadband and or TV work. It’s not an easy battlefield to fight but Sky might have the clout to make such a move if it so wished.

Given the choice we’d be more likely to expect Sky Europe to target O2 because Vodafone is big and already has bold ambitions to become an even bigger pan-European operator. By comparison O2 is also big but struggling to deal with debt. Sky also knows how O2 works from their previous dealings and at the same time CCS Insight has hinted that Three UK might also have an interest in gobbling O2 (here), which could give Telefonica an extra reason to open itself up for merger talks.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
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5 Responses
  1. Avatar Ignitionnet

    Sure you read this right, Mark?

    Sky aren’t going to be buying Vodafone or O2 any time soon. Vodafone are valued at about 100 billion more than BSkyB and O2 would cost at least half-again BSkyB’s value, if that is they could persuade Telefonica to part with it. Telefonica emphatically said a year ago that they had no interest in selling O2 UK, having paid 17.7bln GBP 9 years ago to buy it.

    I can’t see how Sky would be able to gain a controlling stake in O2, and the whole company would barely buy 1/10th of Vodafone.

    • I agree that UBS naming Vodafone seems a bit too far-fetched but, remembering that this is a potentially bigger “Sky Europe” we’re talking about, then O2 UK might not be as resistant to such a merger.

      Naturally Telefonica said they have no interest, everybody always says that, but stranger things have happened. Anyway UBS’s report is just speculation and we see a lot of that every year, it’s all fun and games until somebody says “Let’s do it”.

    • Avatar Ignitionnet

      Okay re-read. Nothing about BSkyB becoming a controlling partner, more about Telefonica or Vodafone scooping up Sky Europe. This makes more sense 🙂

  2. Avatar Greg

    If Sky so much as go anywhere near the cellular bit of O2, I’m going back to Orange!

  3. Avatar dragoneast

    Doesn’t this get recycled every January, like all the horoscopes? Eventually I suppose further consolidation in the European telecomms/media industries is inevitable (like night follows day really, but when you’ve no means of telling the time). Meanwhile we can all fret about what might, rather than what does, happen. Gives us something to do, I suppose.

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