Hutchinson Confirms Talks with O2

O2

Reports emerged earlier in the year about Hutchinson Whampoa looking to strengthen its presence in the UK mobile market, now it has been confirmed that the owner of Three UK is looking to consolidate its UK mobile arm with O2 for £10.25 bn.

The news comes amidst a merger between BT and EE, who entered talks at the end of last year.

Further consolidation between Three and Hutchinson would take the number of UK mobile operators down from four to three which could be a concern for consumers. Ofcom may still allow a deal to go through as other European countries such as Germany and Austria have a model that works with just three operators.

Mark Newman, chief research officer at telecoms consultancy, Ovum, thinks there may still be grounds for concern.

“The big question we should be asking ourselves is whether the consolidation will result in prices going up,” he said.

“Its worth looking at the Austrian market which has gone from five operators a few years ago to three today. It appears as though prices have gone up in the Austrian market.”

Kester Mann, Principal Analyst – Operators, CCS Insight commented “If approved, the deal would transform the UK mobile market. It would create a new leader with over 30 million customers and a market share of 41%. It would also relegate Vodafone to last place in its home market.”

“The agreement is a win-win for both companies which were looking increasingly vulnerable as pure-play mobile operators in a market rapidly transitioning towards multi-play.”

“However, the new entity still would not own any fixed-line assets. This means that Hutchison will need to make a quick decision regarding the intended future direction of the company. If it decides to pursue a multi-play strategy, competing directly with the likes of BT, Vodafone and Virgin Media, it could look to either wholesale access to fixed-line networks or consider making an additional acquisition such as TalkTalk.”

“Alternatively, the new entity could look to offer a compelling mobile-only proposition targeted towards customers that do not wish to buy all their telecoms services from a single provider.”

Hutchison said in a statement that the exclusive negotiations with Telefonica will take a period of several weeks.

“Shareholders and potential investors of the company should note that such negotiations may or may not result in any transaction, and accordingly are advised to exercise caution when dealing in the shares of the company,” it said in a filing to the Hong Kong stock exchange.