Fears Grow Over Three And O2 Consolidation

Business / Mobile

We are hot on our O2 news here at Techaeris. News of talks between three potential buyers have actually boiled down to just one, Hong Kong based owner of Three network, Hutchison Whampoa. They are a very long way from a purchase, but a few details of the proposed deal have started to leak amid fears of loss of competition in the market.

Hutchison Whampoa is controlled by ‘tycoon’ Li Ka-shing, affording the crown as Asia’s richest man, he has a taste for UK based businesses and just purchased a third of the UK’s trains for £2.5bn. Li is a shrewd business man and no stranger to mobile networks. In addition to Three UK, he already has O2 in Ireland and Vodafone in Australia under his brand.

If completed, this deal will be one of the largest UK acquisitions by a Chinese company, with the final figure believed to be in the region of £9.5bn, with an extra £1bn to come later. This is much less than the £17.7 paid for o2 by Telefonica back in 2005, but still a hefty sum to fund. To fund any offer Li is believed to be prepared to offer up to a third of the new business to private equity firms, with HSBC and Bank of America Merrill Lynch on high alert to offer the rest of the £6bn needed.

Fears And Scrutiny

o2 sale logoWhilst most insiders believe the deal is necessary in a rapidly changing industry, some have warned that larger and less numerous networks would lead to larger mobile bills. UK mobile network could be reduced from the big 5 before the formation of EE, down to just 3. Executive director Richard Lloyd raised concerns that any consolidation will be closely watched by regulators.

“Fewer players in an essential market like telecoms is rarely a good thing for consumers and competition, and both O2 and Three already have work to do to improve their customer satisfaction ratings.” – Which? Executive director Richard Lloyd

Ernest Doku, telecoms expert at uSwitch.com, expressed fears that two of the big four network joining will lead to a “knock on effect” pushing up prices. However he is of the opinion that the UK market is strong enough and shoppers are savvy enough to demand more for their money. Competition from VMOs and combined service deals should be enough to steady any market fears.

However, any deal is more than likely a long way off as yet, with approval needed from regulators before any purchase is official. Let us know your experiences with O2 or Three UK and if you think the merger will improve or worsen service.

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