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Why is Three buying O2, and what does it mean for customers?

Telefonica, the firm which owns O2, has confirmed that it is in talks to sell the company to Hutchison Whampoa, the owner of Three, for £10.25 billion.

So how likely is this deal to succeed, and what does it mean for O2 and Three customers, as well as the rest of the UK’s mobile users?

A press release has confirmed recent rumours that Hutchison Whampoa is in advanced talks to purchase O2, for a rather cool £10.25bn in cash (approximately €13.5bn). Which, of course, is still less than the $19 billion US that Facebook spent on messenger service WhatsApp.

If Hutchison Whampoa successfully acquires O2, it will immediately leap from being the smallest carrier in the country to the largest, with around 32 million customers. That beats EE and its 28 million user base into second place and relegates Vodafone to a lowly third, with a mere 20 million users.

Hutchison Whampoa has reportedly offered £9.25 billion in cash for O2, which would be followed by a further £1 billion payment “once the cumulative cash flow of the combined company in the UK has reached an agreed threshold.”

So, how likely is this takeover to succeed?

Telefonica is said to be keen to sell O2, possibly to massively reduce its current debt, and a spokesman for the firm said the company was confident that an agreement would be mutually beneficial.

Of course, the deal is still dependent on due diligence and regulatory approval.

Approval for Three’s merger with O2 is likely to be sought from Brussels, as the majority of Hutchison Whampoa’s revenues come from overseas. Meanwhile, OFCOM – the UK’s own regulator – is likely to show a keen interest in the deal too, to ensure that fair competition and pricing is maintained.

Of course, back in November we caught wind of BT’s interest in purchasing O2, which then became a bid for EE for an estimated £12.5 billion. That particular deal is said to be progressing well; due diligence is under way and no problems have been reported so far, according to Reuters. Whether this fresh bid by Three will have an impact remains to be seen, although a sudden reduction in the number of networks that consumers can choose between is bound to raise a lot of debate.

What impact would Three buying O2 have on consumers?

If BT is successful in acquiring EE and Hutchison Whampoa buys O2, UK customers would be left with only three mobile service providers in the UK. Obviously, less competition isn’t good news for the consumer. It’s competition which leads companies to offer good deals on tariffs and handsets, so less competition usually means less value for customers, with prices typically rising following similar deals in the past.

And of course there could be serious repercussions for O2 customers, depending on Three’s approach to the buyout. O2 is well known for its excellent customer service, something that Three has been criticised for in the past, so O2 users will likely be praying that Three doesn’t mess with the current set-up.

A buyout would also likely mean a change to the O2 rewards scheme, which offers customers priority ticketing to O2 events and loads of other benefits.

On the other hand, both Three and O2 customers may experience improved nationwide coverage – especially Three users, as signal tends to quickly drop once you leave populated areas. And Three’s 3G and 4G browsing/download speeds are some of the best around, so O2 customers may find that they’re waiting less time for videos to buffer or updates to download.

If you’re an O2 customer, or just concerned about a potential buyout, let us know what you think in the comments below.

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