Two UK telcos with quite different business models are in talks to buy out two other major operators in the United Kingdom. If these talks come to fruition the face of the UK telecoms market—a trend setter for the world—will be drastically changed.
Fixed-line incumbent British Telecom (BT) first talked to Telefonica about buying back mobile operator O2, which it had sold to the Spanish operator in 2005 for £17.5 bn. Although Telefonica was reportedly very keen on the deal, BT has now entered into an exclusivity agreement with Deutsche Telekom and France-based Orange to purchase their jointly-owned UK mobile operator EE for £12.5 bn.
While BT was still in preliminary talks with the principals of both 02 and EE, Hutchison Telecom’s 3 UK was also preparing to enter the fray, according to reports out of its Hong Kong headquarters. With both EE and O2 receptive to being bought, it is expected Hutchison will now start negotiations with Telefonica to purchase O2.
BT wanting to buy a mobile operator comes as no surprise, but Hutchison—which has yet to make any official announcement—had been considered more likely to sell up its 3 operations across several European countries and consolidate its operations in Asia.
3 is the smallest of the UK’s four mobile network operators, but if it were to buy O2, the UK’s second-largest operator with about 24 million subscribers, then it would become the market leader with 34 million subscribers. This would leave EE (possibly now a part of BT) in second place with 27 million customers. Third-ranked Vodafone has 20 million—an irony for the global behemoth to be in third place in its home market.
Rivals of BT and 3 will fight tooth and nail to stop the proposed takeovers. Vodafone has already stated its opposition to the BT/EE deal, as have BT’s fixed-line and quad-play rivals Virgin Media and TalkTalk. BT, which is the fixed-line voice and broadband Internet market leader, and also has a strong television offering, would become the country’s third quad-play operator and the only one with its own mobile network as both Virgin and TalkTalk are mobile MVNOs. Vodafone is moving towards quad-play in European markets, and plans to offer UK customers fixed-line services and TV set-top boxes by next year.
3 is strictly a mobile operator, with the focus on mobile data and the mobile Internet. “We were built for the Internet,” is one of its marketing slogans. Although O2 does have its legacy 2G network, its philosophy is similar. So if the M&As go ahead, there would ultimately be a straight fight between the two quad-play/converged networks of BT/EE and Vodafone, plus the two quad-play MVNOs Virgin and TalkTalk, on the one hand, and the pure mobile wireless broadband offering of 3/O2 on the other.
The European Commission has looked favorably on recent M&A activity in the EU’s telecoms sector.