Hutchison Whampoa agrees to buy O2 from Telefonica to create the UK’s largest mobile network.

Hong Kong based investment company, Hutchison Whampoa, has just agreed terms to buy O2 from Spanish telecoms giant Telefonica at a cost of £10.25 billion. Although this deal is subject to the relevant regulatory approvals, on completion it is set to create the largest mobile network in the UK and, according to an article recently published in the Financial Times, will bring together 31 million customers, or approximately 41% of the UK wireless market (Financial Times, March 2016). Given that Hutchison Whampoa own the mobile operator Three, their acquisition of O2 will somewhat revolutionise the UK telecoms market and throw a particular curve ball to Vodafone’s joint venture with O2. Not surprisingly, this recent buy-out announcement has sparked outcry from Vodafone.

The extract below has been taken from an article published in the Sunday Telegraph on 27 March 2016;

“A row has broken out in Brussels over the impact the deal will have on Vodafone’s mast-sharing arrangement with O2. The FTSE 100 giant is claiming Hutchison’s plan to merge O2 with its existing UK mobile operation, Three, will put it at a major disadvantage that effectively calls for massive compensation.

 The argument threatens to derail the merger, which is currently being investigated by European competition officials, Vodafone has told City investors.

 According to Brussels sources, the row is focused on the fate of Beacon, the name of the network-sharing agreement between Vodafone and O2.

 In its current form the two rivals share both the mast infrastructure and the electronics that manage signals.  As part of the competition scrutiny process, Hutchison suggested that following its takeover of O2, Beacon could be downgraded to only cover passive infrastructure sharing.

 The move blindsided and angered Vodafone, say sources familiar with the discussions. Hutchison is not understood to have offered to continue to share electronics, while Vodafone is demanding compensation and more favourable terms in the Beacon contract.

 The potential sticking point has emerged as the European Commission awaits responses from the telecoms industry to the string of concessions Hutchison has offered in a bid to win approval for the merger of O2 and Three.”

The article continues by stating that Vodafone’s claims are currently being investigated by European competition officials – the outcome of this remains to be seen. In addition, the British telecoms regulator, Ofcom, has also strongly opposed Hutchison’s O2 acquisition. They argue that the consolidation will result in less completion and has gone on to express fears that customers may experience cuts in investments and network upgrades. Ofcom’s argument may also have significant impact on BT’s proposed £12.5 billion acquisition of EE (Financial Times, March 2016). Again, the results of these consolidations remains to be seen. Whilst it is clear that there will be significant challenges for UK telecoms landlords going forward in the short term, there will similarly be many opportunities to strengthen their positions in the long term.

The full articles can be found from the links below:

http://www.telegraph.co.uk/business/2016/03/26/vodafone-demands-put-02-takeover-in-jeopardy/

https://next.ft.com/content/9d43d52c-d250-11e4-9c25-00144feab7de

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