O2 boss says a Three merger is most unlikely

With BT in talks with EE and O2, Three has now entered the picture with parent company Hutchinson preparing a bid. O2 boss says a Three merger is unlikely

The chief executive of O2, Ronan Dunne, has played down the possibility of a merger between Three and his network.

The whirlwind of speculation began when rumours surfaced that BT was in highly preliminary talks with O2 over a possible acquisition of the Telefonica owned network. BT eventually confirmed the rumours, saying in a statement: "We have received expressions of interest from shareholders in two UK mobile network operators, of which one is O2, about a possible transaction in which BT would acquire their UK mobile business.”

It wasn’t long before the other mystery operator came to the surface. On Wednesday of last week, EE, owned by Deutsche Telekom and Orange, confirmed that it too was in talks with BT.

BT’s desire to re-enter the mobile telecoms market has been no secret. After winning a decent chunk of the 4G spectrum during the auction, the fixed-line giant has been searching for a way to converge its offerings.

There has been speculation that Ofcom might not allow such a merger in the interests of fair competition. If BT were to buy O2, it would mark a very expensive return to home as BT sold O2 to Telefonica in 2006.

Two become Three

With the industry still struggling to come to terms with the ramifications of these talks, it then emerged late last week that Hutchison Whampoa, the parent company of Three, was also throwing its hat into the ring.

Reuters reported that the Chinese company might put a bid on either O2 or EE and with deeper pockets than BT, the smallest of the major UK networks, could ultimately see itself becoming top dog. Because Three already has a network sharing agreement with EE, Reuters’ sources believe that an EE buy out could make a great deal of sense for Hutchison.

Playing it down

With analysts valuing EE and £11bn and O2 at £9.4bn, it is plausible that both BT and Hutchison may go after the more financially attractive O2; however, at a media dinner last week, the CEO of O2 said he didn’t see a merger with Three on the cards.

“At the back end of last year some analysts told me that their main prediction for this year was that Three will buy O2. All I would say is I slept very soundly that night,” Dunne joked.

In fact, the chief exec said doesn’t necessarily believe that any mergers are likely, claiming that the market does not need consolidation. Many analysts disagree, asserting that the UK mobile network landscape has been ripe for convergence for some time.

Regardless of whether Doone is correct or not, BT seems determined to have a second stab at the mobile space. Whether it does this through a buy out or by starting from the ground up, the telecoms landscape is likely to see some big changes in the coming years.



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