Reports claim retailer is looking to offload Tesco Mobile after posting record £6.4bn losses for FY2015
Tesco is looking to offload its MVNO after reporting record losses of £6.4 billion last year, according to reports.
The retailer hopes to sell Tesco Mobile to help alleviate debts of around £22 billion, the Guardian claimed.
Tesco Mobile had a subscriber base of around four million, according to Tesco’s latest financial results, and the reports claim it is worth around £100 million in profits.
The MVNO runs on O2’s network and is 50 per cent owned by the operator, who has been linked as a potential buyer, although it declined to comment.
According to figures from Kantar, Tesco Mobile has a four per cent share of the UK market, but the retailer has began to sell assets, including its fleet of private jets, after reporting statutory losses of £6.4 billion in the last financial year.
Kantar WPC consumer insights director Imran Choudhary said the MVNO market is becoming increasingly competitive making it “trickier” for Tesco Mobile to maintain market share.
“With Tesco looking to turn around its recent performance, it is now selling off other parts of its business in a bid to reduce debt and costs quickly,” he added. “BlinkBox was sold to TalkTalk and now Tesco are looking to sell their mobile network.
“Tesco Mobile has proven quite successful by adopting a disruptor approach to the market and has dominated the value end of the market. However, in recent years the market has become much more competitive, with Tesco Mobile now having to fend off from an even newer threat from the likes of GiffGaff.
“The likes of TalkTalk and BT now moving into mobile, offering deals that are hard for Tesco to compete with. Sky are also about to launch their own mobile offer making the market Tesco operate in, even more crowded, so perhaps now is the right time for Tesco to cash in and exit this market.”
CityIndex.co.uk chief market analyst Joshua Raymond believes the potential sale could generate as much as £850 million for Tesco if it manages to find the right buyer.
He said: “The speculation that Tesco is looking for buyers for its mobile unit makes complete sense. It is in the mode of removing non-core assets to help reduce its £22bn debt mountain, cut costs and refocus on winning back customers for its core business.
“Any sale amount should be around the £700m mark or even as high as £850m given the fact mobile contributes to around £100m to Tesco profits each year and current sector buyers are paying around 7 to 8 times earnings.
“O2 is a 50% partner in Tesco’s mobile business so one would expect O2 to perhaps be front runners here, especially given BT’s recent acquisition of EE.”