Hutchison and Telefónica confirm O2 acquisition

Consolidation is the new black in the UK mobile market, as Telefónica has confirmed the sale of O2 to Hutchison Whampoa, the owner of Three. The deal, valued at £10.25 billion, is expected to be completed by mid-2016, and will see the formation of the UK’s largest mobile operator.

O2 came into existence in 2002 following the rebranding of BT’s then mobile division, Cellnet. After accruing just under 25% of the UK mobile market by March 2005, according to Ovum’s WCIS, BT flogged O2 to Telefónica for roughly £17.7bn.

The reduction in value Telefónica has placed on O2 is particularly notable. In March 2005, according to Ovum, O2 had 24.74% of the UK mobile market, equating to 15m subscriptions. Leap forward nearly 10 years to December 2014 and the number of O2 subscribers, as well as market share, have both grown considerably; 26.5m and 32.72% respectively.

When considering the substantial growth of both subscribers and market share, Telefónica’s decision to sell O2 for nearly £7.5bn less than it paid for it points towards significant reductions in average revenue per user (ARPU). This could perhaps be in line with the rest of the mobile industry, considering BT agreed to pay 12.5bn for EE.

A statement made by O2 says any merger will create the most user-friendly and customer-centric mobile operator in the UK. One would assume it would need to be, because the acquisition will see Hutchison own the UK’s largest mobile operator, should O2 and Three merge. With more than 44% market share, and nearly 35m customers combined, the operator will firmly surpass EE, which currently has just under 35% market share and 28m customers.

“O2’s vision has always been to provide the very best customer experience,” the operator said. “This deal will – subject to merger clearance – result in the creation of the most customer-centric mobile operator in the UK. We are pleased to be integral to such an exciting ambition and are confident that as a result of the deal, UK customers will benefit from greater value, quality and innovation.”

David Dyson, CEO of Three, concurred with the customer-centric value proposition of the deal. “Three’s leadership in mobile data together with O2’s strength on network coverage is a great combination that will bring very real benefits to businesses and consumers throughout the UK,” he said. “The highly complementary network assets will deliver market leading coverage and capacity for talk, text and data and will be well placed to satisfy rapidly growing demand.”

The deal follows the trend of increased convergence in the UK telecoms sector of late, following BT’s confirmed acquisition of EE, and MVNO launches from Sky and BT to add to their TV content and internet product lines.