Shell set to shell out for Post Office telco ops

Industry News

Fossil fuels aren’t fashionable these days, but for any oil company looking at diversification, the UK retail broadband market would not typically be the first sector that springs to mind.

Nevertheless, a Sky News report on Thursday claims that oil giant Shell has emerged as one of the bidders for the Post Office’s telecoms business.

Full disclosure: I’m not really mad enough to think that Shell is about to ditch black gold in favour of bits and bytes. The company acquired its way into the UK’s home energy and broadband market in 2018, when it completed the acquisition of utility provider First Utility. With that deal came around 825,000 home energy customers and – according to Sky News – 130,000 broadband customers.

That area of the business operates under the Shell Energy brand, and a cursory look at Shell’s group quarterly figures quickly reveals that it barely qualifies as a rounding error on the company’s balance sheet.

However, now that Shell has dipped its toe into the tumultuous waters of telecoms, it is apparently feeling brave enough to go in a little deeper. I should probably stop making analogies about an oil company and water, shouldn’t I?

Anyway, the Post Office put its broadband unit on the block in September, hoping to raise at least £100 million. It currently serves around half a million customers.

According to Sky News, its own parent company Sky is also in the running. Sky stopped disclosing its quarterly broadband customer base years ago, and even less information is made publicly available now that it is owned by US cableco Comcast. The last time I was able to properly check – in 2017 – its combined UK and Ireland broadband customer base stood at around 6 million.

The report also names TalkTalk as a potential bidder; the altnet reported 4.2 million broadband customers at the end of March.

To put all those figures into a larger context, cableco Virgin Media had 5.3 million UK Internet customers at the end of June, and incumbent BT currently has around 8 million consumer broadband customers.

Spending £100 million for an extra 500,000 broadband customers makes sense for the likes of TalkTalk and Sky, which go toe-to-toe with BT and Virgin, and have related products like TV and mobile to cross-sell. Plus they can easily absorb the cost of serving those new additions.

For Shell Energy, acquiring the Post Office’s telco business will do little more than turn it into a slightly larger oddball in the UK broadband market than it is already. Unable to compete on anything other than price with the bigger providers, and with other services – like electricity and boiler servicing – that aren’t quite the same logical fit as comms and entertainment.

If anything, it would make more sense for Shell to follow the Post Office’s example and offload its broadband customers and pocket some spare change.

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