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Three UK’s Parent Hutchison Whampoa Looks Set To Pay £10 Billion Cash For O2

January 22, 2015 - Written By David Steele

In what might be the worst kept secret of recent months, UK pink broadsheet newspaper, the Financial Times, has run a story detailing how Three’s parent, Hutchison Whampoa, is set to buy UK carrier, O2, from Spanish parent Telefonica in a cash deal rumored to be £10 billion in cash. If true, O2 are set to announce the deal tomorrow (Friday). And whilst this is a fresh report, I cannot help but feel the story has been covered again and again by industry and financial press. Still, with it being published in the Financial Times, it does seem a little more likely that there’s a deal on the cards.

We know that Telefonica have been seeking a buyer for their UK carrier as they’re laden with debt, so an all-cash offer from Hutchison Whampoa would be very tempting, even if it is considerably less than the £18 billion Telefonica originally paid for O2. We have seen how BT have been linked with O2, but now appear to be encircling EE as just one of a number of corporate deals taking place across the European mobile telecommunications market, which appears to be more companies huddling together to stave off competition after spending billions on 4G LTE licences. And once one business is bought by another, it tends to encourage the others to follow so that they are not seen as being disadvantaged. Following any merger or takeover, the perception is that the new combined business is keen to invest money on upgrading services so as to attract and retain more customers.

How good a fit could Three UK and O2 be if the businesses were to combine? O2 is the second largest carrier in the UK and Three is the fourth, but together they would be the largest carrier by subscriber numbers, overtaking EE. From a frequency and spectrum perspective, it is a good fit: the new proposed carrier would have LTE spectrum at the 800 MHz and 1,800 MHz points, plus 3G coverage at the 900 MHz and 2,100 MHz points. However, there are deep cultural differences between the two brands together with considerable overlap: many towns have both an O2 and a Three retail store. The retail businesses have been run quite differently, with Three having more of a focus on offering a competitive price for customers and O2 adopting a more “premium” approach but not being afraid to try slightly different things, such as their Refresh plan. Oh and let’s not forget Three using cats as a good thing in their 2014 advertising but O2 using cats as a bad thing! Ultimately, there are some synergies but it seems more likely that the businesses would be managed and run separately for the time being given the cultural differences.

We will have a better idea in just a few hours, as news stories like this tend to be announced at 0700 local time. Let us know in the comments what your thoughts are. Are you an existing Three or O2 customer in the UK? If so, would you welcome this deal, if it meant better coverage from the enlarged carrier?