Hutchison Whampoa Limited – parent company of mobile network operator (MNO) Three – has confirmed industry speculation it has entered into talks with Spanish telco Telefónica to acquire its UK mobile network operator subsidiary, O2.
The exclusive negotiations will last for a period of several weeks, Hutchison said, with an indicative price set at £9.25bn on closing, and a deferred upside interest sharing payment of up to £1bn, should any combined business meet an agreed cash flow threshold.
In a brief statement made early on the morning of Friday 23 January 2015, Hutchison said the transaction was by no means guaranteed, and remained subject to – among other things – the completion of satisfactory due diligence over O2; agreement on terms and signing of definitive agreements; and corporate and regulatory approval.
The operator is understood to see O2 as a declining business – it has suffered from under-investment and came out of the 4G spectrum auction with a bad deal – and does not want to have to buy into TV or fixed line services to keep up with market trends in the UK.
Read more about Three
Ofcom and reduced competition
It is also saddled with debt problems, and wants to refocus its business in its core markets, as well as aiming for aggressive growth in Latin America.
Three, although the smallest UK mobile network operator, claims to be the country’s fastest growing 3G network operator, with 98% of the UK covered, and is currently undergoing a major 4G roll-out.
It has around 7.5 million customers, and its combination with O2 would result in a customer base of over 30 million, shunting EE – itself formed from the merger of Orange and T-Mobile – into second place, and relegating Vodafone to third.
Notably, it would also reduce the number of MNOs in the UK from four to three – something the communications regulator Ofcom has been keen to avoid. The new operator might either have to give up some of its network spectrum, or offer easier access to mobile virtual network operators (MVNOs) such as Virgin Mobile.
Ofcom’s feelings on the matter may be swept aside in Brussels, which has previously allowed consolidation down to three mobile networks in Austria, Germany and Ireland. But for consumers, fewer mobile network options may lead to price rises.