Neil Turner's Blog

Blogging about technology and randomness since 2002

Three + O2 = ?

O2 and Three shops next door to each other in Trinity Leeds

Last week, news came that Asia’s richest man was in talks to buy UK mobile phone network O2. Li Ka-shing already owns Three in the UK and it’s likely that if he does buy it, the two will merge.

Right now, O2 is the second-largest mobile phone network in the UK with around 29% of the market. EE is the largest, although only just, and itself formed by a merger between Orange and T-Mobile. Vodafone is third with 23%, and then Three is a distant fourth with around 12% of the market. Combining O2 and Three would make it Britain’s largest network, but also reduce the four main players down to three.

The remaining 7% are MVNOs – Mobile Virtual Network Operators – who buy wholesale capacity from the big four networks. These include Tesco Mobile, Asda Mobile, Mobile by Sainsbury’s, Lebara, Lyca, Vectone, Virgin Media and many more smaller players.

Three

O2 and Three are quite different. Three is a relative newcomer – it’ll be 12 years old in March – and positioned itself as 3G-first network (although a deal with T-Mobile ensured 2G fallback coverage). It got off to a rough start as it initially only offered patchy 3G coverage in a time when its only selling point was video calling. But as feature phones became smartphones, Three developed a reputation for offering a reasonably consistent 3G, and later 4G signal and lower prices. It’s popular with people like me because it offers contracts with unlimited internet, free roaming in selected countries and free calls to 0800 numbers – something that almost all other networks charge ridiculous prices for. It’s got a more youthful and slightly rebellious brand image, but also a reasonably good reputation for consistent 3G signal, even in less-populated places.

O2

O2 has been around for much, much longer – 30 years, in fact. It was originally called Cellnet and was a joint venture between BT and Securicor, but BT bought out Securicor’s share in 1999 and it became known as BT Cellnet. Three years later, it was spun out of BT and re-branded O2, and in 2005 was bought by the Spanish company Telefonica.

O2 is very big on sponsorship and naming rights. The Millennium Dome in London is now ‘The O2’, and it has a deal with the Academy Music Group to name all of its venues ‘O2 Academy’. There’s also the ‘O2 Apollo Theatre’ in Manchester. These deals mean that O2 customers get earlier access to tickets and can sometimes jump the queue or access VIP areas once inside.

O2 was also the first UK network to get the Apple iPhone, and had an exclusive deal until 2009. Three started offering the iPhone in 2010, and that’s when I joined having previously been a Tesco Mobile customer.

Culture clash

So you have two quite different networks. You have one of the oldest networks in Britain which charges more money but offers its customers extra deals, and a young upstart that offers a cheaper, streamlined service. Combining these two may be difficult – Three customers will not want to lose their unlimited internet or free roaming, even though roaming charges will hopefully be abolished within the EU very soon. And O2 customers probably won’t want to lose their VIP access to venues and other bundled services. If the merger goes ahead, it’ll be interesting to see what happens.

Looking across the Irish Sea

There is a precedent for this, however. Li Ka-shing bought O2 Ireland last year, and merged it with Three Ireland. In doing so, the O2 brand was dropped and all customers were moved to Three. Ireland’s situation is quite similar to Britain, in that there were four networks and now there are only three: Three, Vodafone and Meteor, owned by Eircom, Ireland’s national landline operator. Notably Three retained O2’s naming rights – like London, Dublin had a venue called ‘The O2’, which is now known as the ‘3Arena‘.

Too much consolidation?

The aforementioned merger between T-Mobile and Orange to create EE was permitted by regulators as it wasn’t likely to adversely affect competition in the UK mobile phone market; both were smaller than O2 and Vodafone at the time. So going from five operators to four wasn’t seen as a bad thing.

But I reckon that the regulators will not be so keen on a move from four networks to three. I believe there are real implications for a loss of competition, and a potential for prices to go up. I mentioned that the EU are planning to ban roaming charges when abroad and the networks could take advantage of a less competitive market as an excuse to raise prices to compensate. In Austria, there has also been consolidation which has resulted in price rises. The decision to allow any merger (and remember it’s still at the negotiation phase, so it’s not guaranteed to happen) would be made in Brussels, rather than by the UK’s Competition and Markets Authority.

There’s also the potential for job losses; any merged company ends up with duplicated staff, not at least in retail stores. Orange and T-Mobile often had stores next to each other and when these became EE, one closed. In the photo above, taken in Trinity Leeds, an O2-Three merger would almost certainly see one of those stores shut. We also lost independent retailer Phones4U last year – it’s not a good time to work in mobile phone retail.

As a Three customer myself, I really hope that the merger doesn’t happen. Three’s network coverage is pretty good on the whole and I can’t see it being significantly improved with access to O2’s cell towers. I’m concerned that prices will go up, and that I’ll end up paying for extra ‘priority moments’ that I never use through higher bills. And I can imagine the outcry if Three drops its free international roaming in non-EU countries like the USA, or starts charging for freephone numbers. We’ll have to see what happens.

One Comment

  1. Thanks for explaining all that Neil. To be honest I was always a bit confused about the state of play for English mobile providers so I actually learned something today.