Hutchison 3′s purchase of O2 Ireland marks the latest move in the Hutchison Whampoa-owned operator’s drive to consolidate its position in Europe and shift away from its position as a disruptive challenger.
At the same time the deal, which is valued at €850 million, allows Telefonica to cut down its debt and focus on its core markets, including the UK, Germany and its home market of Spain. If regulators approve the purchase, the combined company would take O2′s place as the second-largest operator in Ireland.
Three has been on something of a buying spree in its European territories in the past year, with the acquisition of Orange Austria being the prime example. Similar to the O2 Ireland purchase, Three took advantage of Orange’s desire to leave the Austrian market and focus on its core European and emerging markets activities. Meanwhile, in Italy, Three is in talks with incumbent Telecom Italia to merge with its mobile operations.
The interesting point about the O2 deal, however, is that this is Three’s second attempt at in-market consolidation in Ireland. In 2012 it made a bid for incumbent Eircom, which at the time was in examinership (similar to Chapter 11 bankruptcy in the US). Although regulators rejected that deal, it is difficult to see the same thing happening in this case.
Blocking Three from acquiring O2 would signal to Hutchison Whampoa that it has no possibility of expanding in Ireland, and likely drive it to abandon the Irish market altogether. Given that O2 is also keen to sell its Irish operation, rejecting the deal could have the effect of reducing competition even further by consolidating market power exclusively with Eircom and Vodafone.
The most likely stumbling block for the merger, however, will be Three’s network-sharing deal with Vodafone. The number one MNO will presumably be less willing to share network capacity with its next-closest competitor than it was when Three was the smallest player in the market.
However, by acquiring O2′s existing network infrastructure, Three will naturally be less reliant on Vodafone’s network, even given the planned deployment of LTE later in the year. On the other hand, O2 also has a network-sharing deal with third-placed Eircom – this will be another point for the regulators and the companies involved to consider.
As a final point, it is worth emphasizing the in-market consolidation that this deal represents. In terms of population Ireland is one of the smaller countries in Western Europe, and it is worth asking whether the Irish market could truly support four different mobile operators. If the deal goes through, it may make Ireland a more attractive market for Vodafone and Three to compete in.
Francesco Radicati is a research analyst with Informa Telecoms & Media. For more information visit www.informatandm.com