BT looks to accelerate re-entry to mobile arena

There was the surprising news today that BT Group are in talks to potentially acquire the O2 or EE business of Spanish company Telefonica. After the success of the company’s move into TV football, analysts are hoping that a deal could accelerate growth in the face of cut throat competition in the telecoms market.

O2 was formed in 1985 as Cellnet, a 60:40 joint venture between BT Group and Securicor. In 1999, BT Group acquired Securicor’s 40 percent share of Cellnet and the company was later rebranded as BT Cellnet and was spun off from the BT Group in 2002 to form a new holding company, mmO2 plc, which introduced the new “O2” brand for the businesses. mmO2 plc was subsequently renamed O2 plc and then sold to Telefonica for £18 billion in 2005. Today’s  announcement from BT means that after nearly 10 years in Spanish hands, O2 could be potentially coming back for a reported £10 billion.

The decision to sell off O2 was widely criticised but was necessary after BT found that it had hugely overpaid in the 3G mobile spectrum auctions around the year 2000 and was subsequently burdened by £30 billion of debt as the economy began to suffer in the downturn caused by the aftermath of the “dotcom” crash. The UK government benefited to the tune of £22.47 billion ($35.4 billion) with BT paying around £4 billion and Vodafone close to £6 billion. In June 2001, BT was forced to tap shareholders in a £5.9 billion rights issue.

BT said today  that it had “received expressions of interest from shareholders in two UK mobile network operators, of which one is O2, about a possible transaction in which BT would acquire their UK mobile business” with discussions “at a highly preliminary stage and there can be no certainty that any transaction will occur”, and it would meanwhile develop plans for providing its own mobile services.

The company has recently announced its intention to launch its own mobile service using infrastructure acquired as part of its acquisition of Cable and Wireless and today’s news has the potential to speed up its aspirations in the non-fixed line business. BT’s shares are up 13p today to 393p as the company seeks to complete its foray into fixed line, mobile, broadband and TV – the so called quad play.

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