Sky moves into UK mobile-phone market after deal with O2 owner

Agreement with Telefónica comes a month after rival BT announced it was to buy EE

Sky is moving into mobile phone services for the first time, with a plan to offer connections to its 11.5m customers next year after striking a deal with O2 owner Telefónica.

The move is the latest development in the rapidly consolidating UK telecoms sector and follows BT’s £12.5bn deal last month to buy EE, Britain’s biggest mobile operator. BT had expressed interest in O2 – which it owned until 2001 – but decided to do a deal with EE.

Last week Li Ka-shing’s Hutchison Whampoa said it was in talks to buy O2 for £10bn and combine it with its Three network, which would create a new market leader.

Sky is to offer mobile voice and data services through a wholesale partnership with O2, allowing the satellite TV operator to give customers a “quad play” package combining television, broadband, fixed-line home phone and mobile. O2’s mobile network will have 98% 4G coverage by 2017.

Sky has 5m broadband customers and 40% of its subscribers already take TV, broadband and a phone line – a higher proportion than any of its rivals.

Telefonica, O2’s Spanish owner, already runs Tesco’s mobile phone service in a similar arrangement, known as a mobile virtual network.

Jeremy Darroch, chief executive of Sky, said the partnership would allow it to offer “a range of exciting new services and exploit the opportunities for growth in the fast-changing mobile sector”.

Ronan Dunne, chief executive of Telefónica UK, said: “This will widen consumer choice still further and demonstrates the lively competitiveness of the UK market.”

The deal with Sky could help win regulatory approval for the Three-O2 deal. The telecoms regulator Ofcom as well as European authorities could have concerns over that tie-up as it would reduce the number of network operators from four to three, reducing competition and potentially leading to higher prices for consumers.

British consumers have enjoyed some of the cheapest mobile deals in Europe with the level of competition in the market, with Three acting as a value proposition.

Sky has had a relationship with Vodafone and a tie-up between the two companies had been mooted following the recent deals by BT and Hutchison.

Vodafone is potentially left without a partner, but could still acquire a smaller player such as TalkTalk, which offers quad play to its 1m-plus customers. Its mobile service had been provided by Vodafone until late last year, when it switched to O2.

Shares in Vodafone were flat in afternoon trading at 237.3p, while Sky fell 1p to 937p.


Chris Johnston

The GuardianTramp

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