Three owner Hutchison and Telefonica finalise £10.25bn deal for O2

Deal forms part of EU-approved consolidation that will see mobile prices rise

Hutchison Whampoa, the Hong Kong-based conglomerate behind mobile operator Three, has finalised its deal to take over Telefonica's O2 subsidiary in a deal valued at £10.25bn - as predicted by reports earlier today.

It follows more than a month of exclusive talks between the two operators since the deal was initially announced on 23 January, and will mark the consolidation of the UK mobile telecoms market down from four players to three - as well as heralding higher prices for consumers.

The conclusion of the deal - subject to the usual regulatory approval - was announced in a statement by Telefonica late today, following the completion of due diligence by both sides. The deal will require Hutchison Whampoa to pay £9.25bn upfront, with a deferred payment of £1bn, presumably subject to certain conditions.

In the process, the deal will create the UK's largest mobile operator, with more than 30 million subscribers, although Hutchison Whampoa will need to raise funds to cover the purchase, and also plans to sell a 30 per cent stake in the enlarged business to private investors.

At the same time, telecoms giant BT is also negotiating with mobile operator EE, co-owned by France Telecom and T-Mobile, to acquire what will be the second-largest mobile operator after "O3", should that deal receive regulatory approval in both the UK and the European Union.

Vodafone, meanwhile, has for some time been said to be mulling a bid for Virgin Media, the cable and broadband company now owned by US cable operator Liberty Media. Such an acquisition would enlarge Vodafone's backbone networking capabilities, which are increasingly required by mobile operators in order to handle fast-increasing volumes of mobile data that they carry over their networks.

Consolidation across Europe is also being driven by encouragement at a European Union-level, which is keen to create some form of pan-European telecoms infrastructure, which will require investment unsupportable at the current margins European mobile telecom operators have to play with.

EU policy-makers look to the US, where the main three players are far larger than the biggest European operators and have been able to invest more quickly in 4G telecoms. Prices, however, are almost double those of Europe due to a lack of genuine competition.

"The larger scale of US mobile network operators (the two leading US operators - Verizon Wireless and AT&T Mobility - are each larger than the three largest EU operators combined) and a relatively consolidated market partly explain why the US mobile sector has recently outperformed the EU mobile sector on a number of metrics.

"These metrics include higher levels of investment and faster rollout of long-term evolution (LTE) (4G) networks, leading to higher average mobile broadband speeds and network data capacity," noted a recent report by analyst group Oxera.