BT’s interest in O2 prompts speculation on fresh deals

Vodafone casts an eye over Liberty Global as sector faces shake-up

BT is already the biggest UK broadband provider so a purchase of O2, owned by Spain’s Telefonica, or EE, a joint venture between Deutsche Telekom and France’s Orange , would restore the former state telephone monopoly to a dominant position in the country.
BT is already the biggest UK broadband provider so a purchase of O2, owned by Spain’s Telefonica, or EE, a joint venture between Deutsche Telekom and France’s Orange , would restore the former state telephone monopoly to a dominant position in the country.

BT pursuit of O2 or EE, Britain’s two biggest mobile phone operators, prompted predictions of a wave of dealmaking in the UK.

The interest shown by Vodafone in Liberty Global shows that’s not just idle speculation. Investors reacted to news of that interest by pushing Vodafone’s shares down as much as 5 per cent. BT is already the biggest UK broadband provider so a purchase of O2, owned by Spain’s Telefonica, or EE, a joint venture between Deutsche Telekom and France’s Orange , would restore the former state telephone monopoly to a dominant position in the country.

With Vodafone and Hutchison Whampoa, owner of UK mobile provider Three, now examining whether to pursue their own deals, according to sources, BT’s competitors appear ready to respond.

Given that most British mobile phone and cable companies are foreign-owned, BT’s move has repercussions from London to New York and Hong Kong.

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A BT acquisition of O2 or EE, each valued at more than £9 billion ($14 billion), would transform the “competitive dynamics in the country’s telecoms industry,” Erhan Gurses, an analyst at Bloomberg Intelligence, said, leaving BT with more than 20 million mobile customers to add to its 33 million subscribers for TV, home phone, broadband and wholesale. “BT are back in the market with a cheque book,” said Nick Jones, a partner at Cavendish Corporate Finance, in an interview, adding that “a big move by BT” will “stimulate the need for growth and consolidation” elsewhere in the UK. Until now, Britain’s telecoms market has been unusual in Europe because most companies do not yet provide the full range of telecoms services – Internet, mobile, television and home phone – preferring instead to buy in services that they don’t have from competitors.

BT’s purchase of a mobile operator would change that in an instant, making it the biggest British company to offer the full “bundle” of all four services – known in the industry as “quadplay”.

It also owns valuable English and European television soccer rights. The challenge for Vodafone and others is how to respond to a competitor that could use its new scale to cut mobile subscription prices to lure their customers away, while offering soccer matches on mobile devices.

Hence Vodafone’s interest in John Malone’s Liberty Global, owner of UK cable operator Virgin Media, as well as other assets in Europe. TV Interest Vodafone may want “a compelling TV proposition to gain scale,” Mr Gurses said.

It’s also considering buying Blinkbox, a video-on-demand service owned by Tesco according to a source.

- Bloomberg