Hutchison Whampoa in talks to acquire O2 in the UK in over $15B deal

The deal could lead to large-scale consolidation in the UK mobile market

Hutchison Whampoa is in negotiations to acquire O2, a mobile operator in the U.K., leading to significant consolidation in the country's mobile services market.

The Hong Kong company, which already owns operator Three UK, said Friday it had entered into exclusive negotiations with O2's parent Telefónica, for the potential acquisition for an indicative price in cash of £9.25 billion (US$14 billion) which would be paid at closing.

Hutchison will also make a further payment of up to £1 billion after the cumulative cash flow of the combined businesses has reached an agreed threshold, it said in a statement.

O2, the commercial brand of Telefónica UK, has over 24 million customers and runs 2G, 3G and 4G networks across the U.K. Three said in December it carried over 45 percent of the U.K.'s mobile data and planned to have 50 cities and 200 towns covered by 4G by the end of last year, in addition to its 3G coverage of 98 percent of the population.

The negotiations between the two companies may not conclude in a deal, Hutchison Whampoa said.

The talks between the two companies reflects a continuing interest among carriers in Europe to combine their fixed, cable and wireless offerings for synergies and economies of scale and to cross-sell to customers a bundle of services.

BT Group said in December it was in exclusive negotiations with Deutsche Telekom and Orange to acquire mobile operator EE in the U.K., which had 24.5 million direct customers at the end of September.

A deal between O2 and Three would create Britain's largest carrier based on the number of subscribers, according to reports.

BT said it expected significant synergies mainly through network and IT rationalization, back-office consolidation and savings on procurement, marketing and sales costs, and would also sell fixed-line services to EE customers.

Ofcom, the U.K. communications regulator, said last month that work still needs to be done to improve broadband and mobile availability, and quality of service for consumers and businesses. The regulator said it is preparing to auction additional spectrum for mobile operators to improve capacity.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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