Three UK Owner Still in Talks to Potentially Buy O2 from Telefonica

The Hong Kong based parent of mobile operator Three UK (Hutchison Whampoa), which before Christmas had initially expressed an interest (here) in buying either ideally EE or perhaps O2, is still in talks to buy Telefonica’s mobile sibling in the United Kingdom and such a deal could be worth as much as £9bn.

Naturally BT’s recent agreement to enter a period of exclusive negotiation with EE (short of a major shock, BT’s plan to buy EE is unlikely to collapse) effectively means that if Three UK wants to grow, and in so doing shrink the current market of four primary Mobile Network Operators (MNO) down to just.. uh.. three, then its best bet is probably to gobble O2 just like it did with Telefonica’s O2 Ireland division a year ago.

The Sunday Times claims that related discussions are still in their early stages and offers precious little detail beyond that. Never the less such a move is by no means surprising because Three UK’s CEO, David Dyson, hinted during 2013 that “under the right circumstances” they might be interested in a merger or outright purchase of O2 (here).

But the situation could easily become complicated, not least because Three UK already has a key network sharing agreement with EE through the umbrella organisation Mobile-Broadband Network Limited (MBNL). On top of that the wider market appears to be moving increasingly towards bundles and convergence, while conversely O2 UK has already abandoned its fixed line consumer broadband and phone interest to Sky Broadband and Three UK is also mobile-only.

Meanwhile Telefonica is under pressure from its debt pile and a weak Spanish economy, indeed they’ve already said they’re open to the prospect of a sale (here). The difficultly in all of this is what view the regulators, such as Ofcom, will take concerning both BT’s moved on EE and Three UK potentially jumping on O2. Is it acceptable to have only three primary MNOs? Might some, such as BT, end up with too much market power as a result?