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French Operator Illiad SA Considers Buying O2 if Three UK Merger Fails

Monday, May 9th, 2016 (4:38 pm) - Score 923
o2 uk

The French telecoms provider Iliad SA, which owns mobile operator ‘Free Mobile’, is reportedly sniffing around O2 (Telefonica UK) and could make a play for the operator if the on-going merger plans with Three UK are dashed by the European Commission this week.

As most people know Three UK’s (CK Hutchison Holdings) hopes of securing a £10.25bn merger deal with rival mobile operator O2 (Telefonica) look set to be dashed after both the EC and Ofcom signalled that they were strongly positioned against an agreement. The final decision is expected this week or next, but it’s an uphill struggle that Hutchison may well lose.

The regulators don’t like the deal because it would reduce the number of primary Mobile Network Operators (MNO) in the UK from four to three, which they claim could result in less competition and higher prices. The deal would also trigger a complicated fight over existing network sharing agreements (i.e. Vodafone shares with O2 and Three UK shares with EE).

On the flip side BT’s increasingly dominant position in the UK market, which has been given a huge boost by the EE merger that went ahead without any major concessions, is worrying the other mobile operators and none more so than minnow Three UK. As such the merger with O2 could be one way to compete more effectively and customers might also benefit from improved network coverage, depending upon how the existing network sharing arrangements are managed.

However so far none of the concessions being offered by Hutchison (here) seem to have had the desired impact and the smart money is now on either a flat rejection of the proposed deal or one with such a huge concession attached that it would be fundamentally unworkable. Three UK has threatened to take legal action if this happens, but O2 may not wait to see the outcome.

Indeed Telefonica has a problem with debt and needs to offload O2 to somebody, ideally sooner rather than later. The Sunday Times (paywall) claims that O2 may end up being floated or sold and Illiad SA is understood to be interested. Mind you interest alone does not a deal make.

Leave a Comment
3 Responses
  1. Avatar Steve Jones

    The question is whether the UK market is big enough to fund four parallel sets of infrastructure which shows an unrelenting demand for investment to keep up with data requirements (which gets more problematical with every crank of the technology as cell sizes have to be reduced. Even with some allowable degree of infrastructure sharing this is a bit of an issue.

    Ofcom don’t seem to consider sustainability when it comes to network provision. On the fixed line side they seem to encourage as much diversity as possible as at many levels as possible without giving much thought to that issue.

    At the retail level a very large number of suppliers is probably not too much of an issue. Costs of entry, like capital investment, are relatively low and there are lots of “virtual service providers” and re-badging games. Infrastructure is another issue altogether. It’s big money, big risk with lots of sunk costs.

    It is perfectly possible that an operator could just decide to pull out, sell for what they can and the network be run on a care-and-maintenance basis as a minimal cost, minimal service platform until such time as the technical service becomes untenable. It will bleed high-value customers of course, but it could easily end up, by default, with what Ofcom don’t want. Three viable networks.

  2. Avatar Matt

    Illiad would be a good person to buy them as they have shown in France they are willing put the money in.

  3. Avatar Captain Cretin

    OFCOMs excuses for refusing the merger look even more suspect now BT have announced an average 20% price increase across their product range.

    BTW has anyone else noticed that their “annual” price increases are now every 10 months??

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