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Tesco Mobile could be sold for up to £850m - analyst

Monday, May 11th 2015 by Ellen Branagh

Tesco is reportedly preparing to sell its mobile business as part of its efforts to cut debts.

Tesco Mobile is an MVNO (Mobile Virtual Network Operator) using O2’s network and is thought to have around 4m customers.

According to reports, Tesco’s 50% share of the venture is thought to be worth £100m a year in profits.

Last month Tesco announced record losses of £6.4bn.

The company has already sold its broadband business and online video service Blinkbox to TalkTalk, in a deal understood to be worth £5m.

It is thought that O2 could be a frontrunner for the purchase of Tesco mobile.

Joshua Raymond, chief market analyst at www.cityindex.co.uk, 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.”

Mr Raymond said he expected the sale amount could be as high as £850m given the fact that mobile contributes around £100m to Tesco profits each year and current buyers in the sector are paying around seven to eight times a business’s earnings when buying it.

“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,” he added.

Both Tesco and O2 declined to comment on speculation over the sale of Tesco Mobile.

Customer loyalty

Last month Cable.co.uk reported that Tesco Mobile has the highest level of customer satisfaction of any major mobile provider, with EE having the lowest.

A survey from cloud-based technology provider Satmetrix looked at levels of customer loyalty in a variety of commercial sectors, including the mobile phone industry.

It measured how likely customers were to recommend a company to others, identifying them as either Promoters (most likely to recommend a company), Passives (neither likely or unlikely to recommend) or Detractors (least likely to recommend).

Tesco Mobile scored a 55% Promoter score – the highest in the mobile survey – while 27% of customers were identified as Passive. Only 18% would actively discourage others from joining Tesco Mobile.

This gave Tesco the lowest number of negative and neutral respondents, and highest number of positive respondents in the survey.

Customers of the supermarket mobile service said that ease and accuracy of payment and billing was the most important thing driving their level of satisfaction, followed by the sign-up experience.

Responding to the survey results, a Tesco spokesperson previously said: "We go out of our way to push the boundaries of what people should expect from their mobile network; introducing 4G at no extra cost, helping customers avoid nasty bill shocks by capping their contracts and our industry leading tariff promise which protects consumers from mid-contract price hikes.

The spokesperson said they were extremely proud of its UK-based customer support team and praise from customers was the best recognition they could hope to receive.

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