Telefonica UK is to sell its O2 and BE consumer broadband and fixed-line telephony business to British Sky Broadcasting Group.

The deal, worth up to €230 million, will see over half a million Telefónica UK consumer broadband and fixed-line telephony customers move to Sky once the deal is completed at the end of April.

“As we focus on delivering best-in-class mobile connectivity, including next generation (4G) services, we believe this agreement is the best way of helping our customers get the highest quality home broadband experience from a leading organisation in the market,” commented Telefónica UK CEO Ronan Dunne.

The deal will also help boost Telefónica’s financial position. Last week, the company revealed the UK business registered a five percent decline in annual revenues.

Ovum analyst Emeka Obiodu pointed out that Telefónica UK’s broadband strategy is now reliant on 4G LTE combined with WiFi as a result of the sale.

He added that, more widely, the sale reduces the power of UK mobile operators in the converged space.

“At a time when telcos across Europe are intensifying efforts to offer converged services, mobile telcos in the UK are making themselves much more reliant on mobile.

“EE still retains a presence in the fixed telecoms space but its offering is increasingly infrastructure-light. Ultimately, this is a dangerous scenario as it might reduce the strategic manoeuvrability of the UK’s mobile telcos in a converged future.”

For Sky, which has 4.2 million broadband customers, four million telephony customers and is the UK’s most popular triple-play provider, the deal makes it the second-largest provider in the UK broadband market.

But it pitches it into a three-way pay-TV and broadband battle with market leader BT and Virgin Media.

BT has spent heavily on new content ahead of a launch of its sports channel this summer; last week, for example, the telco acquired ESPN’s sport channels.

Virgin Media, meanwhile, was taken over by Liberty Global earlier this month.

Obiodu said the deal is “the inevitable consequence” of technology changes and intense competition.

“Local loop unbundling has largely run its course and any broadband provider that wants to remain relevant in the future will need to outline a path to fibre. But that costs money.

“With retail prices so low, and the return on investment tough to earn, pure-play broadband providers will struggle to survive. The market is now left with players that are able to spread the cost of fibre across more services, with its attendant economies of scope benefits.”

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