Three Owner Hutchison Could Announce O2 Takeover This Week

Hutchison Whampoa, parent company of UK operator Three, could reportedly finalise a deal to purchase O2 from Telefonica as early as this week.

The Financial Times says no major obstacles have emerged during the two months of due diligence undertaken by Hutchison since it agreed a £10.25 billion price with Telefonica in January, paving the way for the creation of the UK’s largest mobile operator, overtaking EE.

Telefonica had been a willing seller of its UK business as it had no intention of participating in the ongoing consolidation of the UK communications market.

Three-O2 merger

BT, Sky, Vodafone, TalkTalk, EE and others have moved to offer various packages of mobile, landline, broadband and television services in order to increase revenue and encourage customer loyalty. Indeed, BT considered an offer for O2, its former subsidiary, before opting to buy EE.

Should Hutchison opt to go ahead with the takeover, it is possible that the European regulatory authorities could take an interest as the number of mobile networks the UK would decrease from four to three, reducing competition.

Three, currently the UK’s smallest operator, has a history of disrupting the market with low prices, roaming offers and 4G at no extra cost. Should it become the largest operator, the need for such aggressive tactics would be less obvious.

EC approval

However the European Commission has given its blessing to mergers in other countries in recent times. Indeed, Hutchison is in the process of combining Three and O2 in Ireland and it has been suggested the EC could focus on spectrum holdings and Mobile Virtual Network Operator (MVNO) access.

“A combined Three & O2 would result in a concentration of the lower frequency spectrum (ideal for providing coverage), yet would have no higher frequency spectrum at 2.6GHz, which is needed for capacity given consumers’ insatiable appetite for data,” said Matthew Howett, principal analyst for regulation at Ovum, in January.

“Interestingly, a merged BT & EE would have the lion’s share of that higher frequency spectrum and, as part of that transaction, would also likely have to give up some of the airwaves. By mandating MVNO access, the EC will hope to strengthen and maintain competition between the main network operators, and may even be keen to see Three & O2 guarantee a certain amount of network capacity to newcomers. Other recent developments in the UK market suggest that Sky could be an interested party here.”

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