(Image Credit: iStockPhoto/Rich Legg)
Following the EU Commission’s rejection earlier this week of Three UK’s bid to acquire O2, several parties are reportedly considering offers for the operator — including the former head of EE and the founder of Virgin Mobile.
Market watchers had expected another bidder to emerge if Hutchison CK’s proposed deal with O2 was blocked. Observers suggested a fixed-line provider such as Virgin Media might pursue O2 to create a stronger competitor to the enlarged operator formed when BT acquired EE earlier this year.
Liberty Global, the owner of Virgin Media, publicly supported the proposed Three/O2 combination. At the time, Virgin Media CEO Tom Mockridge warned that the BT/EE merger had concentrated a large share of UK spectrum in one provider’s hands, making it difficult to sustain a competitive fourth network. Mockridge noted that BT/EE held roughly 45% of total UK spectrum — including about 60% of higher-frequency spectrum well-suited to 4G in urban areas — while Vodafone held 28%, O2 15% and Three 12%.
Virgin Media was among the companies slated to receive part of a combined Three/O2 network as a concession had the merger been approved. During Liberty Global’s Q1 2016 earnings call, CEO Mike Fries stated that the company evaluates all market options and would be likely to consider a bid for O2 if circumstances warranted.
Interest in O2 is not limited to Virgin Media. Private-equity firms including Apax and CVC Capital Partners have been mentioned as potential bidders. Perhaps the most notable name linked to a possible offer is Tom Alexander, the former CEO of EE.
Alexander previously led the merger of Orange and T-Mobile in the UK to form EE, a deal that reduced the number of major mobile operators. EU regulators have emphasized that maintaining four significant operators is important to preserve competition in the market — a central rationale behind their decision to block Three’s proposed acquisition of O2.
If Alexander were to take control of O2, industry observers are curious about his plans. One possible approach could involve reconnecting O2 with Virgin Mobile, which Alexander founded in 1998. However, Virgin Mobile currently operates as an MVNO on EE’s network, which could introduce complications to any integration strategy.
An O2 under the ownership of Virgin Media or a similar fixed-line incumbent could exploit quad-play opportunities by bundling mobile services with TV, landline and fixed broadband offerings, driving subscriber growth through integrated packages. Such a move would strengthen retail competition and customer propositions even though it would not alter the existing distribution of spectrum ownership among operators.
Who do you think should take control of O2? Let us know in the comments.