BT could buy O2 in mobile expansion
BT is weighing up a bid to bring its former mobile phone division O2 back-in house 13 years after spinning off the business.
The telecoms giant is in early stage talks to buy the firm, or its rival EE, as it forges ahead with plans to re-enter the mobile market.
BT said it had been approached by the owners of two networks over a deal. O2 is owned by Telefonica while EE is held by Orange and Deutsche Telekom.
Reports have suggested either business could be valued at around £10 billion while it has also been suggested that Telefonica could be given a 20% stake in BT in any deal - a portion worth around £6 billion. BT did not comment.
O2, formerly known as BT Cellnet, had been spun off from BT in 2001 before being bought by Spain's Telefonica for £17.7 billion in 2005.
BT today responded to reports in Spain about a possible deal in a statement which named O2 but not the other operator potentially in its sights, which is understood to be EE.
BT said: "We continue to develop our own plans for providing enhanced mobile services to business and consumer customers, in line with our previous announcements.
"We remain confident of delivering on these plans and have also been exploring ways of accelerating them, including assessing the merits of an acquisition of a mobile network operator in the UK.
"We have 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.
"All discussions are at a highly preliminary stage and there can be no certainty that any transaction will occur.
"A further announcement will be made if and when appropriate."
Investors cheered the announcement, with shares rising 3%.
In July, BT took its first big step back into the mobile phone market as it launched a new business service aimed at delivering fixed line and mobile calls to the same handset.
It is already planning to launch a mobile phone business for the wider public by the end of the current financial year to the end of March.
The latest move comes as BT is also engaged in a TV football war with Sky, as it tries to lure broadband customers with free Premier League broadcasts. It has also bought Champions League rights.
However latest quarterly results for the second quarter to the end of September showed it had been squeezed by rivals' promotions in the cut-throat battle for broadband customers as it reported the lowest level of customer growth for two years.
Telecoms operators are increasingly focused on moving into "quad play" - bundling together landline, mobile, internet and TV services for customers.
Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said it was a sector "ripe for consolidation".
But he added: "I think there would be some kind of irony that they would effectively be buying back a business that they previously had."
Analysts from Bank of America said some of the reported details of the deal could imply a £7.7 billion valuation for Telefonica.
They said that it would allow BT to offer a "quad play" bundle using their own network resulting in savings compared to the alternative of using a separate operator.
However on pricing they added: "BT is unlikely to want to start a price war and reprice O2's current mobile base downwards."
Simon Weeden of Citi said Telefonica was likely to want mainly cash proceeds.
He added: "This could be the moment that commitment to the UK mobile market finally cracks and we see parent companies starting to exit. Profit margins are very low by international standards.
"BT is unusual, if not globally unique, in being a fixed line incumbent without its own mobile network operator."