A shake-up for the sleepy telecoms sector

Telecoms group BT has been in early stage talks to buy either EE, the wireless group owned by Deutsche Telekom and France’s Orange, or O2. The latter used to be BT’s mobile arm (under the name Cellnet), before it was spun off in 2001. Spain’s Telefonica bought it in 2005 for £17.7bn. Telefonica is exploring options for its UK business, while EE had admitted it is considering merging with a fixed-line operator.

What the commentators said

How times change, said Alex Brummer in the Daily Mail. When BT flogged off Cellnet in 2001, it was “in deep financial doo-doo” after overpaying for spectrum licences, while Telefonica was in solid shape when it scooped up Cellnet in 2005. But now BT is flush with cash and Telefonica is groaning under a big debt pile after a series of takeovers. And the mobile market has cooled. Growth has “flat-lined in Europe” and the European Commission “has come down hard on roaming charges”.

Meanwhile, telecoms and TV are converging, added Alistair Osborne. The name of the game is “quadplay”, or four services on one bill: mobile, fixed-line, broadband and TV. BT has accelerated the trend by buying TV programmes from Sky, notably Premier League football. BT is now only missing mobile, while EE and Telefonica have only a few broadband customers.

O2 could be had for just over £9bn, reckoned Lex in the FT. EE would cost more as it has more subscribers (25 million, compared to 22 million) and a better footprint in 4G technology – say £11bn. But BT could pay in shares, or borrow and still have a reasonable debt load. Plenty of other quadplay deals are likely to follow. TalkTalk could be interested in whichever mobile network is left over, while Sky could consider investing in mobile if BT starts to draw customers away.

BT, said Daniel Thomas in the FT, “is going to continue to shake up the once sleepy UK telecoms sector”.

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