Telefónica agrees to sell O2 Ireland to Hutchison Whampoa for €850m

24 Jun 2013

Mobile giant Telefónica has agreed to sell its O2 subsidiary in Ireland to Three’s owner Hutchison Whampoa for €850m.

Telefónica today reached an agreement with Three, the Irish subsidiary of Hutchison Whampoa, to sell its 100pc stake in Telefónica Ireland, which trades under the O2 brand.

The transaction will be subject to approval from the Competition Authority of Ireland.

The total price of the sale of O2 Ireland will be €850m, out of which €750m in cash will be paid on completion of the deal with the remaining €80m depending on financial targets being achieved.

Once complete, the new O2/Three entity will command about 40pc of the Irish mobile telecoms market.

In February, Telefónica reported a 27pc decline in its net profits of €3.9bn, due to the adjustment of the value of its stake in Ireland (O2) and in Telecom Italia. The value of the write-offs totalled €2.5bn. Telefónica said its operating income before depreciation and amortisation (OIBA) was affected by an adjustment of €527m in relation to its Irish operations.

Commenting on the sale of O2 Ireland, Telefónica said: “This transaction is part of Telefónica’s ongoing policy of proactive management of its asset portfolio with the aim of increasing the company’s financial flexibility.

“Without considering the additional deferred payment it is expected that this agreement will reduce Telefónica’s net debt position by approximately €780m, accelerating Telefónica’s deleveraging process and bringing the company closer to its stated goal to reach a net  debt level below €47m in 2013.”

Consolidation of the telecoms market in Europe

The decision by Telefónica to sell its O2 Ireland division represents a greater need for consolidation in the European mobile communications marketplace.

Europe is falling behind other leading markets in terms of investment in broadband and in particular LTE (Long Term Evolution) or 4G networks, due to the fact there are too many operators trying to compete in what is effectively a saturated marketplace.

Most countries in Europe, including Ireland, have a mobile penetration rate of more than 120pc.

Across Europe, there are more than 100 operators competing, whereas in the US there are just four.

As a result, it is getting harder and harder for mobile operators in Europe to derive profits and in turn make the case for investing in next-generation infrastructure.

In Ireland’s case, there were four major operators competing for revenue in a population of 4m people – one-sixteenth of the population of the UK on a land mass one-third the size of the UK.

Expect the sell-off of O2 in Ireland to set the template for further consolidation across Europe.

While on the one hand the acquisition by Three of O2 will mean less operators and therefore less choice for consumers, it could accelerate the pace of 4G network rollout in the Republic of Ireland.

The move is also a pragmatic one for Three. Following the €850m 4G auctions held by ComReg in November last year, Meteor, Telefónica and Vodafone were awarded lots in the 800MHz frequency band while Hutchison 3G Ireland, Meteor, Telefónica and Vodafone were all awarded lots in both the 900MHz and 1800MHz frequency bands.

Not having access to the 800MHz frequency band would have put Three at a distinct disadvantage in the marketplace as it would have been forced to concentrate 4G coverage in big cities and would be unable to fill former 2G and terrestrial TV signal areas with 3G coverage.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years