A 50 per cent stake in Tesco Mobile (the MVNO using O2’s network) held by the struggling UK supermarket is going on sale, according to a number of reports.
The UK has over 100 branded mobile services and Tesco is considered to be the largest, with around 4 per cent of subscribers, outside of the country’s four major operators – 3, Vodafone, EE and O2. The latter is a 50 per cent partner in the Tesco MVNO business.
Joshua Raymond, chief market analyst at City Index, told Mobile World Live the move is part of Tesco CEO Dave Lewis’ strategy to “remove non-core assets to help reduce its £22 billion debt mountain, cut costs and refocus on winning back customers for its core business.”
Raymond added that the sale price could be around £700 million to £850 million, “given the fact mobile contributes around £100 million to Tesco profits each year and current sector buyers are paying around 7 to 8 times earnings.”
Being an MVNO, Tesco Mobile has the advantage of not needing capital expenditure in broadcast masts and other infrastructure.
Raymond expects O2 to be a front runner when it comes to potential buyers, given its existing stake. Telefonica is currently selling O2 to Hutchison Whampoa who intends to merge it with 3 UK. Sky also is planning to enter the mobile market next year in partnership with O2.
Analysts predict the Tesco sale would be given the green light by regulatory authorities.
Tesco also operates around 250 Tesco Phone shops and sells as many as two million mobile phones a year. It operates a competitively-priced mobile service, with MVNO rivals like TalkTalk and GiffGaff.
TalkTalk could be another potential buyer as it recently acquired Tesco’s video TV service Blinkbox. Tesco also recently sold off its fleet of corporate jets and a music streaming service, all part of the same strategy. It is in the process of selling Dunnhumby, its data analysis business, which is expected to be worth around £1 billion to £2 billion.