Analysts shot down suggestions Telefonica could be an unlikely beneficiary of a plan for 21st Century Fox to take full control of UK-headquartered broadcaster Sky, which recently launched an MVNO service using the Spanish company’s O2 UK network.

Telefonica continues to mull several options for its UK business after a proposed merger of the unit with CK Hutchison’s 3 UK was blocked by European Commission competition regulators in May. The deal would have helped Telefonica to alleviate a debt burden of around €50 billion.

While the Spain-headquartered operator is leaning towards an IPO of a minority stake in O2 UK, a pitch by content provider 21st Century Fox could surely sway Telefonica back towards a trade sale.

This week, the US content player agreed a deal to acquire the 60.9 per cent of Sky it does not already own, at a time when there is a trend in Europe “towards combination of fixed and mobile operations by various means, including MVNO deals, joint ventures and acquisitions”, John Delaney, associate VP of Mobility at IDC Europe, noted in comments emailed to Mobile World Live.

Such deals include France-headquartered media company Vivendi taking a near 25 per cent stake in Telecom Italia as part of a broader content strategy, and BT offering sports content via its mobile operator EE. In the US, AT&T is attempting to acquire Time Warner, having already splashed out on DirecTV.

Even with those precedents, Paolo Pescatore, director of Multiplay and Media at CCS Insight, believes a 21st Century Fox bid for O2 UK is unlikely. The US company and Sky “are solely focused on content”, he told Mobile World Live, adding Sky’s decision to strike an MVNO deal is a clear sign the company is “not interested in owning networks”.

Pescatore explained the cost of owning a mobile operator is prohibitively high for Sky, requiring: “a huge investment, not only the cost of acquiring O2, but long term commitment to spectrum and network rollout.”

The same would be true in other key markets including Germany and Italy, Pescatore said. “However, telecoms partnerships in key markets will be important to further growth,” he noted.

Delaney agreed an O2 acquisition remains “an outside bet”, but more because of poor timing than the deal being a mismatch.

“The Fox/Sky deal will face lengthy regulatory scrutiny. Sky is unlikely to bid for O2 during that process because it would introduce complications”. Even if the 21st Century Fox deal is cleared, any subsequent bid for O2 “would itself require lengthy scrutiny”, he said.

Such delays would not meet Telefonica’s pressing need to reduce its debt pile and its resulting desire to “generate cash from O2 UK soon”, Delaney pointed out.

Mark Newman, chief analyst at ConnectivityX, said Sky will benefit from Fox’s buyout even without acquiring O2 UK.

“The MVNO price plans that Sky has launched are competitive, but not so attractive as to guarantee its success. As such, the ability to bundle content from Fox into the services could be a real differentiator. For example, zero-rating some content, offering deals such as free three months of content, or cut-priced subscription services would all be attractive value-adds,” Newman explained.

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