Hutchison in serious talks to take over O2

First we had the Big Five, which has quite recently been reduced to the Big Four. Is Three the magic number then?
First we had the Big Five, which has quite recently been reduced to the Big Four. Is Three the magic number then?

Hutchison Whampoa, owner of Three UK, confirmed that it is negotiating terms of acquiring O2 UK for over £9 billion.

Beginning of this year showed that 2015 might very likely be the year of consolidation. First it was BT that announced its desire to come into the mobile market through an acquisition of one of the main players. BT was supposedly in talks with both O2 and EE but shortly afterwards O2 was not longer in their scope of interest and currently BT is continuing its negotiations with EE which may likely end up positively. A couple of days later, it turned out that Hutchison Whampoa, mother-company of Three UK, also wants to invest their money in a potential huge buyout. Naturally, the operator they approached was O2. This was officially confirmed by the multinational telecoms corporation a few days ago and the proposed deal is estimated at £9.25 billion.

BT’s plans to merge with EE is considered to be a natural move for a company that wants to offer quadplay and from the point of view of customers and regulatory bodies it shouldn’t pose any risks or worries. This isn’t the case for Hutchison-O2 deal. Mainly it is due to the fact that this will effectively reduce the four main providers balance and leave only three major operators in play. We have seen the results of this in other European markets. For example, after Three purchased Orange in Austria that highly competitive market became less competitive and prices of some contract plans even went up. This may not happen in the UK but we would definitely see the price war slow down considerably.

Most experts believe that the BT-EE deal will not have any problems with being granted approval by Ofcom and the European Commission; however this may not be the same for Three’s potential deal with O2. First of all, we heard Ofcom stating that the four operators’ status quo in the UK seems to be the best solution for the market. Second, the final decision has to be made by EC which usually looks deeply into such market changes and most likely would accept the deal only after securing much advantage for other players in the market.  But Hutchison has already successfully dealt with the EC several times. For example, it bought O2 Ireland for around £600 million last year so regulatory bodies are not an obstacle that cannot be overcome.

Should the deal come through, Hutchison Whampoa would amass customer base in the UK of roughly 34 million, which would effectively make it the biggest British operator with around 41% of the market. There is also the case of O2’s brand which is more recognizable than Three’s and has deeper roots in the British society. In the Republic of Ireland, both O2’s and Three’s brands are still in operation but O2’s sports sponsorships are being taken over by Three which might signify that the O2 brand will sooner or later disappear from the Emerald Island. Time will tell if O2 UK shares the same fate.