BT Provides Telefonica With Exit Strategy To Avoid Quad-Play Wars

BT and Telefonica’s admission that they are discussing the potential sale of O2 should come as no great surprise given the recent trend towards convergence in the UK communications market.

Only a few years ago, it was easy to pigeon-hole Vodafone as a mobile operator, BT as a landline and broadband provider and Sky as a television company, but all three have moved into each other’s areas of expertise in recent times.

The latest act in the ‘quad-play wars’ has seen Vodafone announce its intention to offer broadband television services and BT launch its own mobile network. This is a battle that Telefonica appears unwilling to fight, with its COO admitting as much last week, and could see BT strengthen its mobile push by bringing O2 on board.

Fight, fight, fight

The logic behind ‘quad-play’ is simple: by offering more services to a customer, communications firms can extract more revenue and increase loyalty. BT, EE, TalkTalk, Virgin Media and Vodafone are all hoping this is the case, while Sky hopes its packages will still be attractive even without mobile.

Virgin Media was the country’s first such provider but Sky’s aggressive pursuit of BT’s broadband customers helped to spark competition. BT’s response was to strengthen its TV offering with live Premier League football, while TalkTalk launched a Mobile Virtual Network Operator (MVNO) and a no-frills TV service for those wanting a minor upgrade from Freeview – a model imitated by EE TV.

Vodafone feared its mobile customers could be seduced by converged offerings but given that the market is so well-served by others, can it carve out a niche? O2 might feel that the investment required to compete on multiple fronts just isn’t worth it, especially after selling its broadband business to Sky last year.

Telefonica could become the first major casualty of this trend towards consolidation and with BT desperate to re-establish itself as a major mobile force after the folly of selling O2 in the first place in 2005, could provide Telefonica with an exit strategy.

But BT is also in talks with another operator, most likely EE, whose joint-owners Deutsche Telekom and France Telecom would welcome a bid. In either case, the combination of the UK’s largest fixed broadband provider and one of the UK’s two largest mobile operators would be a formidable player in the world of quad-play.

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