Financial muscle flexed as telecoms vie for top spot

The speed at which Three Ireland has tied up a deal for O2 Ireland — competition approval permitting — amply illustrates the company’s determination to grow here, its ability to flex some financial muscle when necessary, and its ambition to become clear market leader inside the next decade.

But with free online services increasingly tempting consumers away from mobile network services in a declining market, it remains to be seen what that market will look like by that time.

The desire of Three Ireland’s owner — the Hong Kong-based conglomerate Hutchison Whampoa — to expand its Irish interests has been no secret and agreeing a deal more than a week before the Jul 5 date for rival interested parties to formally pitch bids for O2 is also significant. The likes of Eircom and UPC owner Liberty Global were also thought to be circling.

Via Three, Hutchison was immediately linked with a move for O2 Ireland as long ago as early 2012, when rumours started that Telefonica could sacrifice its Irish presence in order to lower its substantial debt levels.

It also failed, last year, in an attempt to buy Eircom from examinership, for around €2bn. But, the company’s chief executive Robert Finnegan yesterday described acquisition as being the natural next step after eight years of growth.

He also poured cold water on suggestions that this time it was key for Three to land a deal, pointing out that the company has doubled its business in the past two years and envisages doing so again in the next couple of years, purely organically.

Three’s ultimate objective is to become the clear market leader and to overhaul Vodafone’s 42% share. Acquisition is key to that. Mr Finnegan said this deal shortens the gap and that, whether it takes two, four, or six years, this remains the goal.

The sheer amount of money the company is willing to pump into a market where revenues and margins are declining is bound to raise eyebrows, however, especially as it is simply buying a company offering the same services as its own. Last November, the four Irish-based telecoms shelled out a combined €855m on fresh infrastructure to allow for new 4G services. Between them, Three and O2 spent nearly €180m. Nearly double that will go on upgrading their networks to ready them for 4G services.

Although O2 Ireland has been one of Telefonica’s worst performing subsidiaries of late, Three is seeing this deal — which could see it pay out as much as €850m — as good value for money. The agreement significantly ups its customer share, network capability, and service offering for customers.

While it remains to be seen which infrastructure option Three will opt for — either the 50-50 strategic network partnership it entered into with Vodafone last year or the one currently in place between O2 Ireland and Eircom — it claims it is investing in the future and a slimmed down, more competitive, marketplace — more suited to a country of Ireland’s size.