Three owner in talks to buy O2

Hutchison Whampoa, owner of the Three mobile network, has announced that it is in exclusive negotiations with Telefónica to buy its O2 network and merge the two together into the UK's biggest mobile network.

O2 launched in 1985 as Cellnet, a joint venture which marked British Telecom's entry into the mobile market which it ratified with a deal to buy out partner Securicor in 1999. Despite some major advances along the way - including the launch of the world's first General Packet Radio Service (GPRS) data network in 2000 - BT left the market in 2002 by spinning O2 off into its own company, which was then acquired by Spanish telecoms giant Telefónica in 2005 for £18 billion.

Now, Telefónica is looking to offload the company and Hutchinson Whampoa is putting a deal on the table. The company has announced 'exclusive negotiations' in which it has offered to pay £9.25 billion in cash with a further £1 billion when cashflow reaches an agreed but unspecified threshold. While on the face of it that would spell a significant loss for Telefónica considering its £18 billion purchase price, the company is planning to retain certain assets in Ireland and Germany acquired as part of the original deal.

Previous news reports had suggested that original Cellnet joint-venture partner BT was interested in re-entering the mobile market through acquiring its once and former subsidiary from Telefónica, but at a rumoured £6 billion offer it seems likely Telefónica would prefer to go with Hutchinson Whampoa.

If successful, the deal would make Hutchinson Whampoa's Three network the UK's biggest but as a result will require regulatory agreement. It would also mean the UK mobile network was the domain of three dominating players: the combined Three and O2, Vodafone, and EE, the latter being formed from the merger of Orange and T-Mobile.