Hutchison has revealed a “plan B” for its £10.25bn takeover of O2 as it battles to win regulatory approval, involving selling a stake in Three and creating a new structure that would keep the two mobile operators separate.
The Hong Kong-based conglomerate, which owns the mobile network Three, is aiming to create Britain’s biggest mobile operator via a merger.
However, competition officials scrutinising the plans in Brussels have raised concerns it would stifle competition and raise prices for consumers. They are pushing for a sale of mobile masts and radio spectrum that would allow a new fourth operator to enter the UK market.
Now, Hutchison has unveiled alternative plans to keep O2 and Three as separate operators, but under a
“revised business structure”
It suggested a new investor in Three could give the company the financial firepower to keep Three and O2 as separate networks.
Hutchison, which owns ports, retailers, hotels and an array of other assets across Europe, said the structure could preserve the financial benefits of the takeover.
“The group is considering the sale of a stake in Three UK to a new investor with a view to further reducing the new cash investment required from the group to fund the acquisition,”
“Should such new investment proceed, the group will consider implementing a revised business structure that would maintain the continuity and separation of the Three UK and O2 UK businesses.”
The company’s financial chief Frank Sixt down played the impact the proposal could have on the regulatory process, saying it was primarily motivated by
“operational and other potential benefits”
“The competition authorities would still take the view that they were effectively one competition unit. This isn’t driven by a desire to change the playing field from a competition point of view.”
A number of telecoms companies are hoping to benefit from the merger, should Hutchison be forced to sell off capacity.
Sky and Tesco are bidding for long term wholesale capacity deals, while Virgin Media, TalkTalk and the French operator Iliad have said they could build a new network if Hutchison is forced to sell infrastructure and radio spectrum.
Analysts at RBC Capital Markets said Hutchison’s new plans were a “curve ball” move.
The company, controlled by the billionaire Li Ka-shing, reported net profits of HK$31bn (£2.8bn) in 2015, despite a crash in oil prices hitting its energy business and unfavourable exchange rate movements.
Three’s financial results, published alongside Hutchison’s figures, showed pre-tax profits surged by 47% to £461m in 2015, as customers used record amounts of mobile data watching videos and using Facebook.
But chief executive David Dyson warned that while appetite for data was “insatiable” and had helped boost profits, the company could struggle to meet demand if it did not gain network capacity.
“Our number one challenge is how to keep pace with this demand which shows no sign of slowing,”
Mr Dyson, who joined Three in 2006 after working for Hutchison, said the company was at a “key stage” in gaining approval for the £10.25bn merger with O2, but that the deal was delaying an Ofcom auction of much-needed mobile spectrum.
Three customers each used 5GB of mobile data a month on average last year – a 52pc rise on the year before – mostly from watching videos but also from browsing social media sites, such as Facebook, which accounted for 18pc of total data use.
Three, which has some nine million UK customers, invested £358m in the business, including spending on spectrum licences and improving its “4G” data services.
Handset sales declined from £577m to £549m, reflecting a slowdown in the wider smartphone market.
Group sales were up 6pc to £2.2bn, against an industry in which revenues are generally stagnant or declining.
Source: The Telegraph
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