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UPD2 BT Confirm Talks to Buyback O2 UK from Telefonica or Possibly EE

Monday, November 24th, 2014 (12:55 pm) - Score 1,723

Last week the owner of mobile operator O2 UK, Telefonica, tentatively floated the prospect of putting the FOR SALE sign up (here) and today BT has confirmed to the Spanish press that they’re already in preliminary talks about a possible purchase or merger. In addition, EE’s shareholders are said to have also approached BT for talks.

BT originally had a mobile division of its own (BTCellnet), which it sold in 2005 (after a confusing 2001/2 rebrand and regulatory pressure) to Telefonica for around £18bn and this became known as O2. BT are also planning to re-enter the consumer market in Q2-2015 with a new 4G mobile service of their own, which will harness their fixed line broadband network and make use of their new MVNO deal with EE.

Telefonica, in a brief statement to the market this morning, said, “Telefonica informs that, although it is in talks with British Telecom, these talks are in a highly preliminary phase and there is no certainty that a transaction will take place.

A BT Spokesperson added:

We have received expressions of interest from shareholders in two UK mobile network operators, of which one is O2, about a possible transaction in which BT would acquire their UK mobile business. All discussions are at a highly preliminary stage and there can be no certainty that any transaction will occur. A further announcement will be made if and when appropriate.”

BT was also keen to stress that they’re continuing to develop their own mobile service as planned, although they’re also “exploring ways of accelerating” those plans and this includes “assessing the merits of an acquisition of a mobile network operator in the UK“. Never the less it’s hard to see how this could work without delaying their plans for a launch in Q2 2015.

The EE approach would arguably be more logical, given that they’ve already got a MVNO contract in place and have been developing on that platform for a fair few months (not to mention EE’s home broadband platform that BT manages). But EE would also be a much more significant deal, with the potential for some regulatory concern, while O2 is a familiar entity and one that might attract a fairer price due to the owners seeming willingness to sell.

Up until last year O2 had a fixed line home broadband and phone business of its own, but they failed to make it work and ended up selling the customers to Sky Broadband. O2 doesn’t see a future in bundles, yet BT believes that its planned quad-play model will work and would be a good fit for O2’s mobile network.

UPDATE 25th Nov 2014

As we missed it off our original report by accident, most coverage of this development has since suggested that the exchange could take the form of Telefonica receiving a 20% stake (equity) in BT worth around £9-10bn.

UPDATE 26th Nov 2014

Just in case there was any doubt, the owners of EE (Deutsche Telekom and Orange) have issued the following statement: “Deutsche Telekom and Orange, the joint shareholders of EE, regularly analyse the development of the market in which EE operates, evaluating various strategic options which have the potential to create value for EE’s shareholders and strengthen the market position of EE. As one of these options, Deutsche Telekom and Orange are in exploratory discussions with BT, although it is too early to state whether any transaction may occur.”

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42 Responses
  1. Avatar dave says:

    This doesn’t surprise me at all. o2 has a poor level of coverage according to the map you showed in a previous post a few days ago. I’d rather look at buying vodafone instead, they would have better coverage.

    1. Avatar Raindrops says:

      Let BT have them i say, keep all the slow crap under one company name then its far easier to avoid it.

    2. Avatar Claire says:

      Where I live (Northern Ireland)- it is the opposite – Vodafone and most of the other operators have diabolical coverage, whilst O2 is available nearly everywhere.

      I’d rather see O2 stay in the hands of O2 so that it’s profits aren’t being creamed off to pay for the rights to English Premiership football matches.

  2. Avatar DTMark says:

    “O2 doesn’t see a future in bundles, yet BT believes that its planned quad-play model will work and would be a good fit for O2’s mobile network.”

    Anyone care to speculate on why this is?

    1. Avatar dave says:

      probably because customers go where the cheapest price is. I have ordered plusnet 38mb + anytime phone and tv from sky, mobile contracts from EE. I’d rather pay less than pay more to get all services from 1 company. People aren’t loyal to mobile companies at all, they go with who has the best prices for the mins, texts and data allowance they need.

    2. Mark Jackson Mark Jackson says:

      I think in this case it’s largely down to O2’s failings with home broadband, which we touched on in another article quite recently. More often than not mobile operators neglect their fixed line services to retain focus on the core mobile business, thus failing to stay competitive etc.

      Fixed line ISPs see mobile less significantly, as helping to stem customer bleed, and they’re not as reliant with an MVNO deal on big uptake. But if BT gobbles O2 or EE then they’ll become more reliant on mobile being successful, so that could be quite a test.

    3. Avatar Steve Jones says:

      As mentioned by others, O2 lack any great investment in fixed line infrastructure, like LLU hardware, so they aren’t in a position to do so.

      To what extent BT Retail could provide competitive bundles is open too question too. It will be strongly regulated, so there is limited flexibility on pricing (witness the current “margin squeeze” investigation on BT Infinity/BT Sport. However, it might be thought to be good to be able to offer a complete portfolio but, it could be even more important in the business service sector.

      There is, of course, another gain for BT in that O2 would, effectively, become a captive customer for BTW. Always useful to have. It’s essentially one of the roles that BT Retail (and Plusnet) provide for things like the OR GEA-FTTC products. Without that core customer, the justification for infrastructure expenditure becomes very difficult.

      nb. I was wondering how BT might pay for any takeover, as they are not exactly swimming in cash. However, the Telegraph says that any purchase from Telefonica will involve payment in BT shares (which would value O2 at about 20% of BT’s current capitalisation). I’m sure Telefonica would prefer cash (they bought O2 that way), but there is simply no prospective purchaser with that amount of money in their pockets who wouldn’t run into regulatory barriers.

    4. Avatar Raindrops says:

      BT and O2 would be a good fit, 4G coverage on O2 is abysmal so speeds from that network will happily match up with BTs fixed line products… IE crap.

    5. Avatar dragoneast says:

      Telefonica (O2’s parent)is an international company. So, of course, is BT but its principal market is the UK. Companies will therefore take a different view (in the international context – where their priorities lie and whoever, it’s all about making money or often, reducing losses) both between national markets, and in the same national market. Telefonica have recently been investing heavily in Brazil, for instance, and that may be a priority for them (deliberately or of necessity). Plans change too, as the world does, and opportunism plays its part.

      Perhaps it’s being islanders, but we often seem to take the view that life doesn’t exist beyond the English Channel. It does, rather more of it. And we have to fit in. We may think, “we’re English, we’re more important”. No-one else does.

  3. Avatar GNewton says:

    So this beggar known as BT, to whom hundreds of Millions of taxpayer’s money has been thrown at, now thinks it is rich enough to buy a mobile phone company?

    1. Avatar Steve Jones says:

      If yu read the Telegraph article, it’s not a cash purchase. Telefonica would get a 20% stake in BT. I’m sure Telefonica would love cash (as they bought it for such), but there’s no prospect of that as BT aren’t exactly swimming in the stuff.

      So the result is existing shareholders will have a diluted shareholding of a bigger company.

      http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/telecoms/11249793/BT-in-talks-to-buy-O2.html

    2. Avatar FibreFred says:

      lol you never cease to amaze me GNewton, even if they could buy o2 for cash it doesn’t make any difference to the BDUK funding situation.

      BT would not fund some areas of the country as they were not commercially viable, whether BT had £1 or £100 Billion it makes no difference at all to those non commercially viable areas.

      Not sure how many times that has to be told? It seems like this we are in double figures now?

      Any company that wants to stay in business does not invest money into something that has no or very very long ROI, that business rule applies regardless of your bank balance.

    3. Avatar GNewton says:

      @Steve Jones: Thanks for the clarification. Of course, BT should have never received money via the BDUK in the first place, it never had any need for it. The gap funding model is the wrong approach

      BTW.: BT could learn a lot from companies like Telefonica or JazzTel which are heavily investing in genuine fibre broadband in Spain, adding 100 000 FTTP/B connections each month now in Spain from what I read. Is Jazztel really adding Millions more fibre lines for just 300 Million Euros? How do they do it?

    4. Avatar Steve Jones says:

      Complain the the politicians about BDUK. It’s their invention after all. You can’t really blame commercial companies for taking advantage.

    5. Avatar Raindrops says:

      “Complain the the politicians about BDUK. It’s their invention after all. You can’t really blame commercial companies for taking advantage.”

      Is that not half the problem, BT take advantage, a bit like the scumbags that hassle the elderly, only difference is BT have scammed the whole country.

    6. Avatar Steve Jones says:

      @raindrops

      Oh what it must be like in your world of cartoon villains.

    7. Avatar Raindrops says:

      No idea what you mean i agree with you BT took advantage. You did say they took advantage did you not?

    8. Avatar FibreFred says:

      I can just feel the anger each time the shareprice rises 🙂

    9. Avatar Raindrops says:

      Rises??? Its only just got back to what it was a few years ago has it not. So angry err no, why would i be angry at a yoyoing shareprice which ultimately has not made some long term investors barely a penny.

      As long as you are happy with your dead horse though 😀

    10. Avatar GNewton says:

      @Steve Jones: “Oh what it must be like in your world of cartoon villains”

      So how do you explain this:

      http://www.ispreview.co.uk/review/products/7.html
      https://business.forums.bt.com/t5/Feedback-general-chat/bd-p/Intros
      http://www.thinkbroadband.com/isp/compare.html?isp_7=1&isp_84=1&commit=Compare

      There is a geuninely large number of users who have had bad experiences with BT, these stories are not made up!

      On this ispreview forum, I have seen posts of BT trolls who resort to name calling, or the usage of swear words like ‘bullshit’ when posters express their concern.

      There is a real ‘Can’t do’ attitude in this country (not just BT, part of the problem are the users, too, who can’t be bothered to do something about the telecom messes in many places).

    11. Avatar No Clue says:

      Him comparing real life to a cartoon just about says it all about his mental state.

  4. Avatar terri says:

    if this takes place then I will be leaving o2 as I want nothing to do with BT muppets

  5. Avatar col says:

    What would be the outcome for TescoNet and Giffgaf?

    1. Avatar Steve Jones says:

      Tesco have enough problem with their core business with competition from discounters, let alone become a network operator. Not to mention having a little issue with the quality of their accounting. Tesco are a retailer pure and simple. They buy in wholesale and aren’t going to suddenly buy a telco.

  6. Avatar NGA for all says:

    02 would be interesting. As holder of the 4G coverage obligation it might result in some additional clauses.

    98% (95% by nation) becomes 98% by nation.
    The 2Mbps indoors could become your broadband speed indoors.
    Would the next home hub have 2.6Ghz femto cell within? That would solve roaming, but BT 2.6Ghz licene would need wholesale obligations.

    It would pump convergence and it would provide the basis of a convergenced data transport layer.

    EE purchase, you would get all but the coverage obligation in one place.

    Paying this with over priced shares should be ok.

    1. Avatar Steve Jones says:

      I don’t think that it’s possible to retrospectively change the terms of the original wireless licences, even with a new owner.

    2. Avatar NGA for all says:

      Ammendments can be negotiated if neeeded.

      The idea of out of date market definitions, or indeed licence conditions not accommodating a converged data transport infrastructure would be even stranger.

    3. Avatar Raindrops says:

      A bit like BT decided to change their FTTP rollout, only difference is they were happy to do that as it meant less not more money.

    4. Avatar MikeW says:

      The 4G coverage obligation would probably help them with their many 2Mbps USC contract commitments.

      What they’d need would be a combined 4G/VDSL2/ADSL router/modem that could utilise both fixed & mobile connections – something similar to the model that Deutsche Telekom are aiming for in Germany.

    5. Avatar No Clue says:

      So the USC only applies to BT? Thats a new insightful bit of nonsense for even you.

  7. Avatar Steve Jones says:

    @raindrops

    It’s completely open for commercial companies to change their investment plans if circumstances change, or the analysis changes. It happens all the time. Of course, it all has to be done within the law and licence terms.

    As I understand it, BT changed strategy from FTTP to FTTC on the basis of the cost effectiveness of coverage. A bit embarrassing for those that came up with the initial plans of course, but it’s not obvious what it has to do with mobile licences.

    1. Avatar fastman2 says:

      the business has been able to deploy more FTTC than expected so more exchanges commercial than woudl have been in the orignal plan (look at the size of exchnages in the later phases on commercial deployment

    2. Avatar Raindrops says:

      “AMOUNT” of cabinets has nothing to do with “AMOUNT” of exchanges. One exchange may only serve 300 people and only need 1 cabinet another exchange might serve 30,000 and need a hundred cabinets. Please stop spreading fud.

    3. Avatar Ignitionnet says:

      Did the coverage really change that much?

      https://web.archive.org/web/20080818172857/http://www.btplc.com/news/articles/showarticle.cfm?articleid=%7Befd7b1fa-52ed-45bb-b530-734fac577e94%7D

      10 million premises by 2012, £1.5 billion, that was the plan as of 2008. 10 million premises were passed by FTTx by Q1 2012.

      In 2010 this changed to £2.5 billion and 2/3rds of the UK by 2014.

      It should be mentioned that this includes operational expenditure as well as the cost of building the network, and that £2 billion is ‘new’ expenditure dedicated to the programme.

      The extent to which FTTP was scaled back seems to be indicated by that in 2008 the intention was to deploy FTTP to 10% of the announced areas:

      http://news.bbc.co.uk/1/hi/business/7506742.stm

      I have no idea when the decision was made to forego FTTP in favour of FTTC or how much extra coverage it resulted in but it’s not going to be hundreds of thousands of premises I wouldn’t have thought.

      Wonder if FTTC also proved more expensive than expected, hence the FTTP portion was put under pressure both ways?

    4. Avatar No Clue says:

      “Did the coverage really change that much?”

      No it didnt but the BT fanatics have no other logical excuse for Openleach dropping FTTP.

    5. Avatar GNewton says:

      “this includes operational expenditure as well as the cost of building the network”

      What’s so special about operational costs? Aren’t there operational line costs all the time? Can someone like NGA for All please explain?

    6. Avatar Ignitionnet says:

      It makes the total spend sound more impressive than it actually is basically.

      Saying you’re spending £2.5 billion on NGA sounds better than saying you’re spending c.£1.6 billion building NGA then a further £0.9 billion over however many years monitoring the cabinets, powering them, etc, etc.

    7. Avatar No Clue says:

      Commonly known as diddling the figures 😉

    8. Avatar Raindrops says:

      Even more commonly known as “BT Maths”

  8. Avatar Bob2002 says:

    TalkTalk are moving their mobile network supplier to O2 from Vodafone, wonder what it means for them in the longer term if BT take over?

  9. Avatar Richard says:

    I’m on talk talk mobile and Vodafone reception isn’t all that. I was hoping o2 would be better.

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