What does the Three/O2 deal mean for the UK mobile industry? Mobile experts discuss

Following this morning's announcement that the owner of mobile network Three, Hutchison Whampoa, is in advanced talks with Telefónica to acquire O2 UK, The Drum caught up with mobile experts to establish what the deal, reportedly worth £10.25bn, means for the UK mobile industry.

If the deal goes ahead successfully, what impact will the combination of Three and O2 have on the mobile market?

According to Libby Robinson, EMEA managing director at M&C Saatchi Mobile, the deal could have a “detrimental" effect on the mobile economy as the industry consolidates further, leaving little space for significant new entrants to the market.

“Ofcom considers four operators to be essential to keeping prices low for consumers. Without significant new entrants, consolidation could lead to higher tariff prices, and in turn, higher data costs. This would be detrimental to the mobile economy,” she remarked.

“Of course, new entrants could come to the market, but we would like to see a competitive mobile operator industry maintained. In terms of what this new entity would look like, we imagine it will be similar to the development of EE, which has now abandoned legacy marketing initiatives (such as Orange Wednesdays). The acquisition could mean that O2’s sponsorship initiatives are altered in the future.”

Meanwhile Milton Elias, head of mobile at OMD, said a joint collaboration and the expected wider network coverage could benefit customers of both companies. “Given Three’s selling point as a provider of ‘truly unlimited’ mobile internet, which is offered at no additional cost, we can imagine we’ll see more customers consuming more media via mobile devices and in more locations,” he added.

On the surface, the deal looks like a “match made in heaven”, said Ilicco Elia, head of mobile at DigitasLBi. “O2 were pioneers in reducing churn through customer engagement and loyalty programs. By contrast, Three’s challenger brand proposition was led by innovative contract structure, especially with regards to data use, roaming, and over-the-top content and services.”

However, the biggest questions around the deal relate to regulation, said Elia, who added that the two companies will have a job on their hands to reassure authorities that the consolidation will not have a negative impact on consumers.

According to Zac Pinkham, managing director, EMEA, Millennial Media, reducing the number of major mobile operators to three is likely to increase prices, from a consumer perspective. “For the media world, the long-term effects are harder to call as this is primarily a customer acquisition play by Three, making them the UK's largest operator,” said Pinkham.

“However, with BT looking to enter the fray with its proposed acquisition of EE, I think we’ll see an interesting evolution of UK operators over the next year as they seek to position mobile at the heart of a connected ecosystem.”

From a branding perspective, the motives for the deal are clear, said Greg Handrick, partner at Prophet, which works with T-Mobile. According to Handrick, the deal would be a “brilliant move” for both companies.

“The telco industry has become a scale game, and this deal would give the combined O2/Three network the financial resources to make game-changing investments, something that O2 and EE/T-Mobile have struggled to do because of the large debt burdens of their parent companies."

Jettisoning the mainstream O2 brand would make “little sense” for Hutchison Whampoa, said Handrick. Could we see a new, unified brand? “I think there is still a role for both brands, as they serve different niches, but the more obvious (and efficient) approach would be to rebrand everything under O2, or rebrand completely (like EE).

“We’re going to see two things happening in the UK market over the next 18 months: pure-play mobile operators consolidating to achieve scale and TV/broadband operators buying up mobile players to increase their quad-play offers. It’s all about reducing churn and acquisition costs, which you can achieve by having the biggest and best network, or by locking customers in with bundles.”