Tesco set to put mobile business up for sale

Tesco is poised to put its mobile business on the block, as chief executive Dave Lewis intensifies his sale of the supermarket chain's non-core assets.

The business could be worth hundreds of millions of pounds, given that Tesco's share of its profits is about £100m a year, according to people with knowledge of Tesco's operations,

Tesco has been talking to bankers over recent days about putting Tesco Mobile up for sale, according to people familiar with the situation.

Tesco Mobile is the largest branded mobile services provider in the UK outside the four mobile network operators, with more than 4 per cent of subscribers at the end of last year, according research group Ovum.

The retailer uses the mobile network owned by O2, which is a 50 per cent partner in the business, under wholesale rates, as a so-called "mobile virtual network operator".

The British mobile industry is fiercely competitive, with more than 100 rival branded services, including those of other retailers such as Dixons Carphone that use the networks owned by the four mobile network operators.

The value of Tesco Mobile will be in part be the brand itself, although the retailer operates more than 250 Tesco Phone shops. Tesco also sells as many as 2m mobile phones a year.

Tesco operates a value-based mobile service, which has a number of direct rivals such as TalkTalk and GiffGaff.

Tesco has already sold its video TV service Blinkbox to TalkTalk, which would also be a potential acquirer for the Tesco Mobile customers.

O2 is regarded by some analysts as an obvious buyer of the business. However, O2 is being sold by Spain's Telefonica to Hutchison Whampoa to merge with its British business, Three.

The deal is expected by analysts to be cleared by Brussels regulators, but only after agreement to open the network further to similar branded competitors. Similar remedies have been levied in comparable deals in Germany and Ireland.

All parties declined to comment.

Tesco has been plunged into crisis by a sharp decline in sales from its British supermarkets, under pressure from the no-frills German discounters, Aldi and Lidl, and the discovery last year of a £250m profit shortfall.

Two weeks ago, what was once widely regarded as Britain's most successful retailer reported a pre-tax loss of £6.4bn - one of the biggest deficits in British corporate history - after £7bn of charges, primarily for writing down the value of its UK store estate.

Tesco also revealed that it had £22bn of debt or debt equivalents, such as leases, compared with just under £1bn of underlying profit in the year to the end of February 2015. This has sparked speculation that Mr Lewis will sell assets, although he has insisted that there will be no "fire sale".

Expectations of the sale of Tesco Telecoms comes as the retailer is poised formally to start the sale of its Dunnhumby data analysis business, which is expected to be worth between £1bn and £2bn.

Tesco said last week that it had reached agreement with Kroger, the US supermarket chain with which Dunnhumby works, to enable the business to work with other retailers in the US. The exclusive deal with Kroger could have been a stumbling block to Dunnhumby working with other US retailers.

The sales memorandum for Dunnhumby is expected to be sent to potential buyers by the end of this month. Interested parties include WPP and a number of big private equity firms.

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