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Telefonica UK Floats Tentative Prospect of an O2 Mobile Sale

Friday, November 21st, 2014 (8:30 am) - Score 1,402

The owner of mobile operator O2 (Telefonica), which last year sold their home broadband and phone customers to BSkyB (Sky Broadband) after failing to make a success of the business (here), has warned that if more of the United Kingdom’s telecoms market moved towards bundled services then it may have to consider putting up the FOR SALE sign.

Historically mobile operators haven’t had much luck in the consumer fixed line market. For example, EE’s home broadband only recently returned to growth after struggling for years under Orange UK, while Vodafone gave it a go until selling customers off to PlusNet in 2011 (here) and of course O2 itself failed to make it work and last year sold out to Sky. Meanwhile Three UK has kept to a purely mobile focus.

In nearly all of these cases some of the root causes of failure can be traced back to a combination of factors, such as a lack of advertising or an inability to understand what their customers wanted and to keep their products up-to-date with what others in the market were offering (e.g. O2 dragged their feet for years over FTTC, despite clear demand among their customers).

Funnily enough O2’s fixed line service was actually quite good (thanks to the BE Broadband LLU network), yet they slowly made their packages more restrictive and expensive, which they also did at a time when rivals were doing the opposite. Meanwhile Vodafone’s recent decision to move back into the consumer fixed line broadband market (here), which is itself a response to BT’s move into the mobile sector, appears to be making O2 nervous.

Jose Maria Alvarez-Pallete, Telefonica’s COO, said (Reuters):

If the market goes convergent then we will need to evaluate our options … In the landscape as it stands today we are in good shape, but the position taken by BT when and if it launches in mobile will be a key event. Virgin and others already have converged offers, but we don’t see a major appetite from consumers. So we’ll see how that evolves.”

In fairness bundles are nothing new and their prevalence has been slowly growing over the past few years. Today EE, Virgin Media and TalkTalk are already quad-play (broadband, tv, mobile and phone) providers. Next year BT and Vodafone will join that pack and Sky Broadband are widely expected to do the same by adding a mobile solution of their own, most likely through a deal with existing partner Vodafone.

As a result of all this O2 and Three UK will be left as the only two mobile-dedicated operators in the market, although it remains to be seen how successful Vodafone and BT’s respective offers will be. We strongly suspect that BT’s market reach, hybrid 4G/WiFi technology approach and advertising prowess will enable them to break through. By comparison Vodafone’s history in the home broadband sector makes us sceptical.

Lest we not forget that O2 recently signed a deal to become TalkTalk’s new MVNO partner, replacing Vodafone. Sometimes not having a quad-play solution can have its own advantages. But O2 are still right to be worried about the future and they’re unlikely to adapt by taking a second stab at the home broadband market so soon after leaving it.

Much will probably depend upon just how much of a success BT and Vodafone’s rival services actually become and we suspect that it may take a while for both to build themselves up. So for now it looks as if O2 will simply watch and wait to see what happens, much like the rest of us.

Leave a Comment
7 Responses
  1. Avatar dave says:

    Sky or BT should just buy out o2.

  2. Avatar Tim says:

    This comes just after TalkTalk ditches Vodafone and signs a deal to move their mobile customers to O2.

    What we need is an ISP to take on a mobile broadband network as this could lead to higher usage packages, WiFi roaming much like BT/Fon or even femtocells built into home routers.

    It could be a very good move for TalkTalk to buy O2… perhaps not the best buyer but it could cause the shake up that is needed in the mobile market.

  3. Avatar Ignitionnet says:

    Perhaps this is how they’ll be part-funding their replacement of copper in 80%+ of Spain with FTTP.

    http://www.telecompaper.com/news/telefonica-to-replace-spanish-adsl-network-with-ftth-by-2020–1050512

    I am aware that the popular opinion is that, due to Ofcom and in turn EU regulations this should be impossible, but it would appear that that isn’t the case given Telefonica are doing it.

  4. Avatar col says:

    What impact if any for Tesco Net and Giffgaff?

  5. Avatar GNewton says:

    This is the same Telefonica which in Spain adds over 100 000 FTTH connections each month, and which plans to expand the coverage to 80 percent of Spanish households by 2017. Makes the UK, and especially BT, look like yesterday’s copper dinosaur.

  6. Avatar david says:

    we couldn’t have sky or BT buying o2 or id definitely jack my mobile provider in as I would’nt want nothing to do with sky or BT

  7. Avatar cyclope says:

    “Funnily enough O2’s fixed line service was actually quite good (thanks to the BE Broadband LLU network), yet they slowly made their packages more restrictive and expensive” The network was pish poor and couldnt cope due to many exchanges only having a small 100mb fiber link hence the congestion issues that lots of it’s customers witnessed far too frequently, as well as those heavy users being given MACcodes for using too much on was was a truly unlimited broadband service, that and them claiming at one point they where the king of pings,i still have the sticker to proove that claim , which was BS as far as my BE unlimited and BE wholesale connection was concerned, telefonica clearley did not invest in their uk network where as the likes of Easynet did invest, they had at least 1GB fibre links in exchanges hence why their Ukonline LLU service was low latency and never saw peak time congestion, and they never kicked any customers off for using too much data unlike telefonica
    02 operated a unsustainable busienss model and where at one point actually paying customers to take their products, as well as offering 12mths free little wonder it failed

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