In what could become a period of incestuous consolidation, the owner of mobile service provider Three is now in early talks to bid on rival network O2.
Citing unnamed sources, the Sunday Times reported that Hutchison Whampoa – the Hong Kong conglomerate behind Three - may be looking to offer Telefónica up to £9bn for O2. The Spanish telecoms giant, which bought O2 from BT in 2005, is apparently looking to exit the UK market in order to pay off debts.
When T-Mobile and Orange merged to become EE, the cries of anti-competition were deafening. Now, with BT – the largest fixed line and broadband provider in the UK – in firm talks to buy out EE, the remaining three networks run the risk of being squeezed out of the market. If Hutchinson were to make a successful bid on O2, it would take ownership of the second largest network in the UK. Regardless of what might happen to the Three brand, Hutchinson would essentially leap frog Vodafone, which would become the UK’s smallest network (although Vodafone would remain the world's second largest network by subscriber base, behind only China Mobile).
Sources say that Telefónica is keeping its options open, with the likes of Sky and TalkTalk potentially having a seat at the table. However, where most players have branched out, Three and O2 have maintained a mobile-only strategy over the years and so it makes a degree of sense them to stick together.
What Ofcom will make of all this is anyone’s guess. The UK regulator has strongly supported having four competing networks and so could well choose to block any such buy out. The decision could be escalated to the European competition regulator which has been more lenient on similar buy outs on the continent.