Earlier this week, TelecomsTech reported that British Telecom (BT) is considering bids for EE and/or O2’s mobile operations as part of a strategy to re-enter the consumer mobile market and offer a full “quad-play” package—combining fixed broadband, TV, landline and mobile services. Reuters now indicates that Hutchison Whampoa, owner of Three UK, is preparing to bid for either EE or O2 before the end of the year.
EE and Three currently operate under a network-sharing agreement, a relationship that could make Three particularly motivated to protect or expand its network interests. EE is valued at approximately £11 billion, compared with O2’s estimated value of around £9.4 billion. The lower price tag and potentially reduced regulatory scrutiny could make O2 a simpler target. Earlier this year Three acquired O2’s Irish business, suggesting a pattern of consolidation that could continue in the UK.
Securing EE would represent a significant strategic victory for Hutchison. EE—the joint venture formed by Orange and Deutsche Telekom—is the UK’s largest network and, as highlighted in our recent “State of UK mobile networks” analysis, it ranks as the fastest and most reliable among the major operators. While O2 holds relatively little spectrum compared with EE, combining O2’s assets with Three’s existing spectrum could help close the capability gap with rivals.
Our analysis pointed out that EE’s lead was driven in part by its early launch of 4G services. Regulators might be more comfortable with a BT acquisition of EE given BT’s limited mobile spectrum holdings, despite BT having secured some 2.6GHz spectrum in Ofcom’s recent 4G auction. If BT acquires EE, Hutchison may focus on O2 instead—an outcome that could bring Three’s and EE’s networks closer together in terms of coverage and performance.
The potential deals would carry a sense of historical irony. BT sold O2 to Telefónica nearly a decade ago for £17.7 billion, and Hutchison Whampoa previously held a substantial stake in Orange, which today owns half of EE. These past ties add an extra layer of complexity to a market already poised for change.
Whatever the final outcomes, the UK telecoms sector appears set for notable restructuring. We will continue to monitor developments closely and report on material updates as they emerge.
05/12/14: Speaking at a conference in Paris, Orange CEO Stéphane Richard said he expected BT to make a decision about EE before Christmas: “BT has its own calendar. You should know more a few days before Christmas.”
Do you think Hutchison will end up buying EE or O2? Let us know in the comments.