O2 UK Reportedly Mulling Return to the Fixed Broadband Market

Mobile operator O2 UK is reportedly reviewing the possibility of a return to the fixed line broadband ISP market, which it originally exited in 2013 as part of the £180m+ acquisition by Sky (Sky Broadband) of their BE Broadband based fixed line internet and phone network. We see an uphill struggle.

The story of O2’s original foray into the United Kingdom’s fixed line broadband market is easily one of the more interesting examples of how not to run an ISP. Prior to O2’s acquisition, BE Unlimited (aka – BE Broadband) had become one of the country’s first ISPs to offer an unbundled (LLU) and ADSL2+ based broadband network, which at the time made them both faster, cheaper and more flexible than other BT (Openreach) based ISPs.

As time went on BE’s edge was slowly eroded as rival LLU providers, such as TalkTalk and Sky Broadband, sprang up to challenge but the ISP continued to grow and they were eventually gobbled up by O2. Funnily enough BE’s original founders went on to create one of the country’s first true “full fibre” (FTTP/B) providers, Hyperoptic, but that’s another story.

Under O2 the network initially retained its reputation and for awhile continued to grow. Unfortunately this began to go into reverse as the new owner appeared to lose touch with changes in the wider market. Customers complained of price hikes, routing problems, network congestion, an inability to offer FTTC based “superfast broadband” packages (huge mistake at the time) and efforts to disconnect heavy users (here).

Suffice to say that few were surprised when, in 2013, O2 finally took the decision to re-focus upon the roll-out of their 4G mobile network and thus sold their fixed line base on to Sky (here).

O2’s Return to Fixed Line?

According to Bloomberg, O2’s Spanish parent (Telefonica) is said by industry sources to be reviewing a possible return to the UK’s fixed line broadband market, although at this stage the talk in that article of mounting a serious challenge to BT seems rather fanciful and may be more down to creative journalism than accurate reporting.

Telefonica has spent the past few years trying to either sell off or merge away O2 UK in order to tackle their underlying debts, although so far they’ve had precious little success with either approach (example). Since then the operator’s debts are understood to have become more “manageable” and as such Telefonica appears to have growing confidence in O2’s future position within the UK market, which they seem willing to back.

The report suggests that Telefonica / O2 may be considering several options, such as leasing bandwidth wholesale from BT / Openreach or Virgin Media (Virgin doesn’t do this yet but their parent is reported to be reviewing the idea of going open access), building its own network (this would have to be full fibre if they started from scratch) or acquiring an established player.

The latter two of the aforementioned options would be the most expensive approaches to take and it’s worth considering that O2 are mulling this over at the same time as having to consider the huge cost of deploying 5G technology. In that sense we think they’d be better off following by Three UK’s example and developing a 5G based home broadband product, but that’s just our view.

Building a new fixed line network from scratch, in a market where a lot of alternative network (AltNet) providers are already doing the same, seems likely to be too great of a risk for a company with O2’s flaky experience in the fixed line field. Similarly starting from scratch via a wholesale arrangement would be an uphill struggle. As such a greater possibility may come from the acquisition approach, much like they did before with BE.

Of course the review may equally amount to no change at all. Meanwhile BT and EE have been slowly working towards much closer convergence via a new all-IP network, although it’s worth noting that many consumers still prefer to keep their mobile and fixed line connectivity services separate and so the longer term appeal of this effort remains unclear.