Rumour mill: Are Vodafone and O2 stalking 3UK?

The merger of Orange UK and T-Mobile UK--approved by the EU earlier this week--has provoked analysts into speculating what action Vodafone and O2 might take given they both now face a much larger competitor with the ability to force down Capex and Opex costs.

Top of the list is the possibility for Vodafone to merge with 3UK. Shaun Collins, MD of CCS Insight, said that a merger between the two operators would not be beyond the realms of possibility in Vodafone's quest to not be left behind. "‘Firstly such a deal would be competitively appropriate, and secondly Hutchison has been looking for options for 3UK--it would be inconceivable if the two had not talked about 3UK being acquired. After all Vodafone and 3 merged their businesses in Australia so there is a track record and the channels for communication are there."

Taking an alternative viewpoint, Eddie Murphy, MD of Priory Consulting, believes a merger between Vodafone and O2's networks is a more likely option, certainly in the short term. The two operators already share parts of their networks but Murphy said the deal between Orange and T-Mobile could prompt O2 and Vodafone to forge a full network sharing deal.

"I think it is likely the UK will become a two-network market following the merger," said Murphy. "Orange and T-Mobile and 3 will be merging their networks and I would be amazed if Vodafone and O2 are not talking about the possibility of merging their networks too. The competitive advantage the merger creates is so strong it will put a lot of pressure on O2 and Vodafone to consider collaboration. Clearly the bigger the network, the stronger you are."

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