By Simon Zekaria
LONDON-- BT Group PLC on Monday said it is in talks to buy
Telefonica SA's U.K. mobile business, 02, as the British telecom
incumbent lays out its ambitions to be a fully-fledged wireless
operator in the U.K.'s converging telecom market.
BT is already planning a return to consumer mobile next year,
but said it is exploring ways of "accelerating" its plans, which
includes assessing the merits of an acquisition of a mobile network
operator in the U.K.
The 168-year-old London-based group, responding to recent media
reports, said it had received "expressions of interest" from
shareholders in two U.K. mobile network operators, of which one is
O2, about a possible transaction in which BT would acquire its U.K.
mobile business.
O2 is one of the big four U.K. wireless operators, along with
EE--a joint venture between Orange SA and Deutsche Telekom AG,
Vodafone Group PLC and Hutchison Whampoa Ltd.'s Three.
The other U.K. network operator being offered to BT is EE,
according to a person familiar with the matter. EE declined to
comment.
"All discussions [with Telefónica] are at a highly preliminary
stage and there can be no certainty that any transaction will
occur," BT said in a statement.
BT confirmed the talks after a report in the Spanish media said
Telefónica is negotiating taking a 20% stake in BT in exchange for
O2. BT wasn't available for further comment.
Telefónica also confirmed the talks, saying they were at a "very
preliminary phase."
A deal for O2 would see BT reacquire a wireless business it
demerged in 2001, called BT Cellnet. Telefónica bought O2 in 2005
for GBP17.7 billion ($27.7 billion).
In midmorning London trading, BT shares rose 2.9% to 390.9 pence
in a largely unchanged overall market.
BT offers retail consumers so-called triple-play services of
fixed phone, Internet broadband and television, and competes for
subscribers with rivals such as Liberty Global PLC's cable operator
Virgin Media and pay-TV giant Sky PLC. Next year, through a leasing
deal with EE's network, it plans to launch a consumer mobile offer
to supplement its existing business service.
Last week, Telefónica said it would consider all strategic
choices for its U.K. operations, including a possible sale, should
Britain's telecom operators continue to add fixed-line assets and
television content to their wireless services.
"If the U.K. is to be a convergent market, then we need to
evaluate all possibilities," said Telefónica's Chief Operating
Officer José María Álvarez-Pallete, speaking at the Morgan Stanley
telecom, media and technology conference in Barcelona.
Unlike countries such as Spain and Germany, U.K. telecom
operators have yet to fully embrace so-called quadruple play offers
of fixed telephony, mobile, broadband Internet and television. But
rivals Vodafone and EE are moving into the space. Virgin Media and
telecom group TalkTalk also participate in "quad" play.
European telecom operators are eager to move into broadband and
media services outside their core telephony business to jump-start
flagging revenues across the continent's anemic wireless markets.
Bundled services are also perceived to boost subscriber revenue and
increasing customer loyalty.
Analysts at Barclays said European telecom operators are
positioning themselves for bold market moves as they are buoyed by
more favorable sentiment.
"Following years of relentless earnings pressure driven by
macro, competition, regulation and technology, we believe the tide
is finally turning positive, supporting a constructive view on the
industry," said analyst Maurice Patrick.
Christopher Bjork contributed to this article.
Write to Ian Walker at ian.walker@wsj.com
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