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Three UK reportedly in talks to buy O2 for £9bn

These are certainly interesting times for the UK mobile market. With cash-strapped customers increasingly turning to lower-cost devices and price plans, the United Kingdom is fast approaching saturation point in the smartphone space, as rivals aggressively compete to attract new customers, and to retain new ones.

With tough UK market conditions, even some of the biggest players are looking for a way out. Spanish communications giant Telefónica has been exploring the possibility of an exit from the UK for some time, with numerous reports indicating that it has been seeking a buyer for its O2 UK network, which includes the giffgaff MVNO.

According to The Sunday Times, it may have found one. Unnamed sources have claimed that Telefónica is in talks with Hutchison Whampoa, the Hong Kong conglomerate that owns O2's UK rival, Three. They claim that Hutchison is considering a £9 billion ($13.6 billion) bid for O2, and that it has hired investment bank UBS to help in that process.

Hutchison and Telefónica have done business before; Three purchased O2 Ireland in 2013 for almost a billion dollars. If a similar deal can be agreed for O2's UK operations, the merged company would become Britain's largest mobile carrier, leapfrogging the current market leader, EE.

EE is itself likely to be acquired in the coming months, as it is currently engaged in exclusive talks with BT, the UK's largest fixed line and broadband provider, to agree a £12.5bn takeover. BT had also considered buying O2 from Telefónica, but EE's larger subscriber base and lesser debt obligations made it a more appealing prospect for purchase.

If these two mergers proceed as planned, the UK market will change considerably, with two giant mega-carriers dominating much of the market, leaving Vodafone somewhat isolated in the shifting sands. Speculation persists that Vodafone might be a potential target for acquisition by US carriers AT&T or Verizon, but this remains far from certain.

The intense fight for consumers in the UK market has already claimed one major casualty - last year, one of the country's largest independent device retailers, Phones 4u, collapsed with the loss of thousands of jobs.

Source: The Sunday Times via Bloomberg

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