The number of mobile network operators in Britain could soon drop from four to three, according to the chief executive of the UK's smallest carrier.
Three, which has 7.8 million customers and 10% of the market, has previously opposed consolidation in the UK, arguing that prices would rise and consumers would suffer.
"Under the right circumstances the UK could operate competitively with three or with five," said Three chief executive David Dyson, predicting a round of consolidation in Europe from 2014. Any mergers would have to ensure balance in the market, leaving a trio of strong players at the end of the process, he added.
Dyson was responding to speculation that Three, which is owned by the wealthy Hong Kong conglomerate Hutchison Whampoa, could look to buy O2 in Britain, as it is currently seeking to do in Ireland. With outsiders such as America's AT&T looking to enter the European market, bankers are predicting a wave of mega-mergers and acquisitions starting next year.
Dyson said mobile operators across Europe were being pushed towards mergers as they suffer "death by 1000 cuts". Companies face the double pressure of falling revenues and rising costs. Just as they prepare to ramp up investment to roll out new 4G mobile internet services, their revenues are being slashed.
Income from voice calls and text messages is falling as customers switch mobile communication to internet-based platforms such as Instagram, WhatsApp and Facebook. Regulators have also forced operators to reduce the inflated cost of using a phone abroad, and are looking to cap the amount customers are liable for on large bills run up on lost or stolen phones.
Much hinges on what regulators decide in Germany in the coming months. Telefonica's O2 brand has applied for permission to merge with E-Plus, reducing the number of network owners in Germany from four to three.
"Let's see what happens in Germany first," said Dyson. "We are three years into a five-year plan to double our customer base from five million to 10 million. If we can deliver on that plan maybe that makes us more interesting as a target or puts us in a position where we can do something as an acquirer."
Three opposed the 2010 merger of T-Mobile and Orange, which reduced competition from five to four players in Britain, and has sided with the telecoms watchdog Ofcom in arguing for a minimum of four competitors. During the last spectrum auction, Three secured special protection from Ofcom to ensure it was not outbid and could continue to challenge the big three – EE, O2 and Vodafone.
Research consultancy CCS Insight has forecast a merger between Three and O2 in its predictions for 2014. This would establish Three as as a leading European operator and follows recent deals struck in Ireland and Austria, said CCS, adding: "Telefonica, O2's parent, is looking to reduce debt and may be keen to sell in a market with favourable regulatory conditions."
Dyson was speaking as Three added the United States, Indonesia, Sri Lanka and Macau to the list of countries where customers will pay the same for using their phone abroad as they do at home.
