Comment: BT takes ring road to mobile strategy

Martin Flanagan
Martin Flanagan
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IN THE world of telecoms, what goes around comes around. BT is in talks to potentially buy back O2, the mobile network operator it spun off in 2001 to focus on fixed telephony for residential and business customers, to which broadband and TV sports coverage were increasingly added.

Electronic fashions change, however, and in back-to-the-future style, the increasing “bundling” of fixed and mobile telecoms services has made fixed-line players and mobile network operators wonder whether their corporate divorces turned out to be premature.

Not only is BT talking with 02’s Spanish owner, Telefonica, however. The former state-owned giant also says that it is in preliminary discussions with another unnamed British mobile network operator about its possible acquisition by BT.

That other player is understood to be EE, the UK business of Deutsche Telekom and French-owned Orange, which earlier this year put on ice a plan to raise money through a stock market flotation.

A Telefonica executive recently spilled the beans on the greater fluidity with which the company views its O2 subsidiary against this backdrop of bundling telecoms when he said industry developments meant all options had to be evaluated.

The most likely transaction would be for BT to buy one of these mobile businesses outright in return for the owner taking a sizeable minority stake in the British giant as part of a strategic alliance.

BT chief executive Gavin Patterson has played his hand well in both emphasising the company’s discrete plans in providing better mobile services to its business and consumer customers, and divulging it is in talks with more than one potential mobile player.

Patterson can play off Telefonica against the other party in order to keep the acquisition price down. It looks like a deal that will happen because all parties are keen and it makes commercial sense. Take O2. It accounted for 14 per cent of its parent’s earnings in the first nine months of 2014. Chunky, but by no means a game-changer for Telefonica in strategic terms. The same is probably true of EE and its relationship now with Orange and Deutsche Telekom.

In short, BT is probably pushing at an open door in its bid to accelerate its return to a beginning of the millennium strategy of having an holistic fixed line and mobile offering.

No insurance against market merger doubts

AVIVA’s planned takeover of Friends Life is meeting a mixed reception. Immediate reaction to a rushed-out merger statement late on Friday suggested it was an insurance industry marriage made in heaven. From it would flow a beefed-up Aviva balance sheet aided by Friends Life’s strong cash generation, underpinned dividend growth, significant revenue and cost-cutting benefits, and the creation of the undoubted industry leader.

However, after a weekend of reflection, the market decided the smaller Friends was getting the better of the deal.

Its shares rose nearly 6 per cent, while Aviva’s fell 5 per cent.

One analyst even dismissed the takeover as an Aviva rights issue in disguise. Ouch. Others said there was no detail on the amount of synergies or where they would come from.

Others said, vaguely, but with much historical evidence, that these big mergers rarely add value. The jury is out.

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