Hutchison Whampoa faces a fight in its bid to acquire the UK mobile assets of Spanish incumbent Telefónica, with reports stating TalkTalk and BSkyB (Sky) are also circling O2 UK.
Sources told the Financial Times that Sky and Telefónica have been negotiating over a potential deal for O2 UK since late 2014, as the Spanish incumbent seeks an exit from a market where converged services are increasingly the flavour of the month.
The talks with Sky have been conducted in parallel with Telefónica's discussions regarding a sale of O2 UK to Hutchison Whampoa, which would seek to merge the UK operator with its local Three UK business. The FT reported that the Hong Kong-based company has already offered at least £9 billion (€11.7 billion/$13.6 billion) for Telefónica's UK business.
A report by Bloomberg indicated the talks with Sky may not lead to a sale of O2 UK. Instead, Sky and Telefónica are said to be discussing a mobile virtual network operator (MVNO) agreement, which would enable Sky to offer quad-play services comprising fixed line phone and broadband, TV, and mobile services.
Such a deal may be easier to sell to competition regulators, because it would maintain the number of full mobile network operators in the UK at four rather than cutting it to three, as would be the case with any deal between Hutchison Whampoa and Telefónica.
UK ISP TalkTalk has also been linked to a bid for O2 UK. The company has already signed an MVNO agreement with Telefónica as part of an overall strategy that will see the fixed operator expand its "quad-play" offering.
In a separate report, the FT noted that TalkTalk's share price was boosted by the speculation, which analysts said would make sense for the ISP by providing it with a viable mobile business.
The benefit for Telefónica, however, may be muted. Analysts told the FT a merger with TalkTalk may not bring the benefit the Spanish incumbent is seeking; namely a reduction of its debt.
Telefónica is considering its options in the UK after BT entered into exclusive talks with EE parent companies Orange and Deutsche Telekom regarding an acquisition of the UK mobile operator.
The Spanish operator last year received regulatory clearance for the sale of its O2 Ireland business to Hutchison Whampoa--a deal that also reduced the number of operators in the market from four to three. Whether competition authorities would look as favourably on a similar deal in the UK remains to be seen.
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