BT set to snap up O2 this week

BT will confirm its plans to buy mobile network O2 as early as this week, according to a newspaper report. The Daily Mail claims BT has chosen O2 over rival EE, and that a deal is set to be announced imminently.

BT confirmed that it was in takeover discussions with both mobile networks a fortnight ago, but now appears to have set its sights on the smaller of the two networks. EE has 27 million customers, whilst O2 currently has only 24 million. 

Although smaller than its rival, a deal for O2 could be more beneficial for BT for several reasons. O2 is likely to fetch a much lower asking price than EE because of its smaller customer base, and because its 4G network is much less developed than EE’s. BT won some 4G spectrum in 2012’s auction, but it’s in a different band to that won by O2, which means the merged companies would potentially be able to build a much stronger 4G network than they could do seperately. 

O2 would also be easier to integrate into BT, because it sold off its fixed-line broadband business to Sky last year, whilst EE still has broadband customers that would need to be transfered to BT’s network. 

Perhaps the biggest advantage of buying O2 is that it’s likely to attract less regulatory concern than the purchase of EE would. BT is already the country’s biggest fixed-line telephone and broadband provider, and acquiring the country’s biggest mobile network would likely set alarm bells ringing at the UK’s competition authorities and telecoms regulator Ofcom. O2 has around 25% of the market, roughly the same as Vodafone, and is therefore less of a threat to competition, although any deal would still likely require regulatory approval.   

It’s something of a homecoming for O2, which started life as Cellnet back in 1985, a company that was majority owned by BT. It was spun off and rebranded as O2 in 2002, before being bought by Spanish telecoms giant Telefonica in 2005.  

Time for ThrEE? 

BT buying O2 could now pave the way for a merger between EE and Three. The Chinese owners of Three, Hutchison Whampoa, expressed an interest in buying either EE or O2 when news of the talks with BT became public. Three already has a mast-sharing deal in place with EE, which would make pooling the two networks’ resources much easier.

If those two deals were finalised, that would leave the UK with only three major mobile networks: EE/Three, BT/O2 and Vodafone. Not only would that greatly erode the competition in the market, but would likely lead to less revenue for the government in future radio spectrum auctions, where all three players would be almost guaranteed an allocation and so less likely to outbid one another. Five companies won spectrum in the 4G auction that took place in 2012, raising more than £2 billion for the treasury.