Phone Merger Wave Reaches U.K. as Vodafone Joins BT Seeking M&A

The wave of phone-company deals in Germany, Spain and France has now arrived in the U.K., where BT Group Plc and Vodafone Group Plc are considering multibillion-pound mergers.

While deals for European phone and cable carriers this year have reached the highest value in almost a decade, the U.K. has barely been involved. The pace is set to pick up, as Vodafone’s exploration of a deal with Liberty Global Plc and BT’s plan for a mobile takeover are prompting every big U.K. phone company to weigh options.

Europe’s operators have struck tens of billions of dollars in deals to combine network assets and bundle TV, Internet and wireline service with mobile access. Yesterday, cable company Altice SA took a step toward a $9.2 billion takeover in Portugal. Britain’s carriers are warming to the idea of combined services, which can boost customer loyalty and revenue.

Every big market in Europe “is bringing their respective fixed and mobile assets much closer together,” said John Karidis, an Oriel Securities Ltd. analyst in London. Owners of U.K. phone companies in talks with BT can “see the writing on the wall.”

BT is considering a purchase of EE or O2, the U.K.’s two biggest mobile operators. The fixed-line provider views EE, the venture owned by Orange SA and Deutsche Telekom AG, as its preferred target because of its broad mobile spectrum and stable of high-paying customers, people familiar with the situation said last week. O2 has the benefit of a single owner that’s very open to a sale, Spain’s Telefonica SA, the people said.

Malone, Hutchison

Vodafone, the largest wireless carrier outside China, is considering a combination with John Malone’s Liberty Global to create a European phone, Internet and TV company valued at more than $130 billion, people familiar said last week. In the U.K., such a deal would combine the No. 3 wireless carrier with broadband provider Virgin Media.

Hutchison Whampoa Ltd., owner of the U.K.’s No. 4 mobile provider, Three, is also examining whether to pursue its own deals, according to people familiar with the situation.

Telecommunications and cable company deals have totaled about $90 billion this year. That’s the most since 2005, when Telefonica’s purchase of O2 was the industry’s top announced transaction of the year.

Europe Deals

In France, cable provider Numericable Group is taking over SFR, the country’s second-largest mobile carrier, in a $23-billion deal. In Germany, Telefonica bought wireless carrier E-Plus in a transaction valued at about $11 billion. Vodafone purchased fixed operators Kabel Deutschland Holding AG in Germany and Grupo Corporativo Ono SA in Spain.

Yesterday, Luxembourg-based Altice, billionaire Patrick Drahi’s cable holding company and owner of Numericable, entered exclusive talks to acquire Oi SA’s Portuguese assets for about 7.4 billion euros ($9.2 billion). The assets would add to Altice’s cable units Cabovisao and Oni in the country.

“There is a big theme of operators buying technology -- mobile operators buying fixed technology and vice versa,” said Guy Peddy, an analyst at Macquarie Group Ltd. in London. “In the U.K. it is still early stages.”

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