Sky has bought O2's broadband and telephony business for £200m in a move that makes the firm the second biggest internet provider in the UK at the expense of Virgin Media.
The deal, which covers both O2 and the BE service, is set to be completed by the end of April and will mean some half a million customers will be transferred to Sky's management.
Selling its fixed line broadband business will will allow O2 to more fully concentrate on its mobile offerings in the UK as it gears up for a major push around 4G
Sky will pay £180m up front for the business and a further £20m on successful completion of the transition of the customer base from O2.
"We believe that the O2 and BE consumer broadband and telephony business is a great fit, with customers used to high-quality products and strong levels of customer service," said Jeremy Darroch, Sky's chief executive.
"We look forward to welcoming these new customers to Sky and giving them access to our wide range of high-quality products, great value and industry-leading customer service."
Emeka Obiodu, telco strategy analyst at Ovum, said the news of the takeover was significant on several fronts.
"This strengthens the hand of BSkyB in the market as the company would now be able to boast of having a bigger TV customer base, and more broadband customers than its main rival - Virgin Media," he said.
"Such a prospect will concern Liberty Global a bit when it moved to take over Virgin Media in February."
He said the deal also means O2 is throwing all its weight behind mobile offerings, as it ditches the fixed line market.
"For O2, this is significant as it now puts its hopes for a broadband future on LTE, combined with Wi-Fi. In the recent auction it won spectrum in the 800MHz band, which will be good for providing coverage, albeit with limited capacity," he said.
"O2 will have to rely on 800MHz spectrum and its existing spectrum holdings (unless a rival is willing to trade spectrum) combined with the Wi-Fi push it instigated in 2011."
The deal comes after Virgin Media was bought for $23bn by US giant Liberty in early February.
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