Sky And O2 Deal Shows O2’s Faith In 4G

Peter Judge

Sky gets a stronger services hand – but O2 is gambling on the ultimate victory of mobile 4G services, says Peter Judge

There are several interesting things about Sky‘s deal to buy O2‘s broadband and home phone business. It obviously makes Sky a stronger player, but it also looks like a statement from O2 about the relative importance of 4G and fixed broadband.

What Sky gets is pretty obvious. It jumps up the rankings of broadband providers. “This strengthens the hand of BSkyB in the market as the company would now be able to boast of having a bigger TV customer base, and more broadband customers than its main rival – Virgin Media,” said Emeka Obiodu, telco strategy analyst at Ovum. “Such a prospect will concern Liberty Global a bit which agreed to  take over Virgin Media in February.”

Also, consumer broadband and Pay-TV are now inextricably linked. BT has invested in deals for TV rights. YouView TiVo – and Sky+ boxes are sprouting in every living room. everywhere. BT has been buying up TV rights to go with its broadband, and Sky is approaching from the opposite direction. The largest Pay-TV provider is now the second largest broadband provider.

Will LTE trump fibre?

concept network fibre chip abstract network broadband © Toria ShutterstockFrom the other end, though the deal suggests that – for Telefonica at least – it’s not about bundling. O2 is quite happy to ditch the wires, and apparently the mix of mobile and fixed broadband is not quite so natural as it might once have seemed.

O2 is leaving partly because it doesn’t have deep enough pockets to compete with BT, Sky and Virgin. As well as content, any broadband player has to have a path to fibre, and that doesn’t come cheap.

But O2 may also say that the deal is coming about partly because it doesn’t feel the need of fixed broadband any more.

“O2 now puts its hopes for a broadband future on LTE, combined with Wi-Fi,” says Obiodu. The 4G auction has finished, and EE’s 4G service is already well under way on earlier spectrum, so O2 could have a pretty good idea of what it can offer with 4G.

O2 won spectrum in the 800 MHz band which has good range and penetration so it can have a good coverage. Obiodu notes that 800MHz doesn’t have much carrying capacity, and O2 failed to get any 2.6GHz spectrum – or perhaps made a conscious decision not to try for any – so it doesn’t have the speedier short-range spectrum in the higher frequency.

It can, however, hope to partner with other players, trade spectrum, or else re-purpose some of its existing spectrum, as EE did.

A number of O2 customers will be disappointed at the lack of a bundled option. Some may have  opted for O2 in order to get cheaper broadband. Clearly O2 doesn’t think that business is worth making any sacrifices for.

Mobile first strategy?

It may even be that O2 sees mobile eclipsing fixed links. If  mobile devices (phones and tablets) become the first choice device, then mobile networks could take precedence. For people, who perhaps don’t spend much time at home, mobile broadband could become the primary connection, augmented by Wi-Fi (on other people’s broadband) whenever available.

Obiodu says this is unusual compared with the rest of Europe where convergence is proceeding apace – but in the UK, Vodafone, 3, EE and O2 all have little or no presence in fixed lines.

So, while Pay-TV and fibre broadband are converging, fixed and and mobile broadband are separating.

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