Sky agrees deal with O2 owner Telefonica to launch mobile service

Lynsey Barber
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Sky will offer mobile contracts to customers (Source: Getty)

Sky has agreed a deal with Telefonica to launch a mobile network in the UK.

The broadcaster will launch a mobile service for customers in 2016 using Telefonica’s 2G, 3G and 4G networks.

The move follows hot on the heels of rivals moving into the mobile business in order to offer customers so-called "quad play" - TV, phone, broadband and mobile services as competition heats up.

BT is set to buy UK network EE, while Virgin Media and Talk Talk offer all four services.

Sky agreed a multi-year MVNO agreement (mobile virtual network operator, or partnership with a mobile operator) with the Spanish network following speculation that it could buy its UK network O2.

Telefonica also provides Tesco Mobile's network.

Ronan Dunne, Telefonica's chief executive, said the deal would widen consumer choice in the mobile market and "demonstrates the lively competitiveness of the UK market".

Sky boss Jeremy Darroch said: "Through our partnership with Telefonica UK, we can build on our expertise in content, innovation and service to launch a range of exciting new services and exploit the opportunities for growth in the fast-changing mobile sector."

It's a quick and decisive move for the company after Darroch said in October that it didn't see the move into mobile as customer-driven, but was keeping its options under review.

Telefonica is in exclusive talks to sell its UK network O2 for £10bn to Hutchinson Whampoa, the owner of UK mobile network Three.

It's unclear how the two deals will work together.

Liberum analyst Ian Whittaker said the move was not unexpected, however following a bid from its biggest rival BT for EE in December. The move could spur further consolidation in the UK telecoms sector and even a bid for Sky by Vodafone, he said.

Probably the more interesting question is what happens on the telco side and particularly for Vodafone - it now faces two effective quad play challengers (BT and a O2/3/Sky combo). The question is whether it looks to build its own quad play capacity by buying Virgin Media (or its parent Liberty) or - less likely but cannot be entirely ruled out - launching a bid for Sky itself, even though this would not solve the question of owning a fixed-line network.

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