In Europe's mobile sector, M&A is still on operators' minds

The Spice Girls may have waxed lyrical about two becoming one, but in Europe's mobile market many operators would be happy if four just became three. Indeed, the buzz around consolidation refuses to die down as we move further into 2015, and operators continue to believe that consolidation is necessary for their future survival.

This week saw rumours resurface that Hutchison Whampoa is eyeing up O2 UK as the Hong Kong-based company continues to explore ways of boosting its European presence further still. After already snapping up Orange Austria and O2 Ireland, Hutchison is well versed in M&A in the European Union, and would certainly have another regulatory battle on its hands if it tried to merge O2 UK and Three UK.

It could also face some competition for the UK mobile operator: reports on Tuesday suggested that Sky, TalkTalk and Liberty Global have all expressed interest, although moves by any of these three would maintain four mobile network operators in the market.

For Telefónica, a Hutchison offer could provide an exit route from a market that is becoming increasingly problematic for a mobile-only player, and would certainly help bolster both Three UK and O2 UK in the face of converged offers from rival players. Indeed, should the former incumbent BT buy 4G heavyweight EE as it intends, convergence and quadruple-play are likely to emerge as stronger trends.

Vodafone already follows this strategy in a number of its other markets. In Germany--which became a market of three mobile network players last year when Telefónica Deutschland acquired E-Plus--Vodafone launched a new integrated offering only last quarter: the Vodafone All-in-One plan combines a Vodafone Red mobile plan with home broadband and TV into a single bundle with promised savings of around €240 over the year.

That plan is set to compete with Deutsche Telekom's MagentaEINS portfolio, which also brings together mobile and fixed plans into integrated service bundles. Telefónica Deutschland has now said it intends to put itself on an equal footing with Deutsche Telekom and Vodafone Germany by offering the same network quality as its rivals no later than 2017, and plans to focus on flexibility rather than following the general industry trend towards converged service bundles.

M&A and convergence certainly dominated the headlines in 2014, and it looks like the industry is in for more of the same in 2015.--Anne

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