Telefonica Will Pay $31 Billion for O2

Spain’s Telefonica SA said on Monday it has agreed to buy British mobile phone group O2 PLC, which owns network operators in the U.K., Germany, Ireland and the Isle of Man.

Telefonica will pay US$31.4 billion for O2, Telefonica said in a statement published on the Web site of the London Stock Exchange.

The deal ends speculation about O2, which has been courted by several operators, including Koninklijke KPN NV of the Netherlands and Germany’s Deutsche Telekom AG.

It also ends speculation about Telefonica buying KPN. The Spanish telecommunications company had been rumored to be willing to pay €20 billion for the Dutch company.

The deal is subject to regulatory approvals, among other conditions. Telefonica expects to close the deal in January 2006, it said.

 Telefonica is keen to break into the German and U.K. mobile markets, two of Europe’s largest, it said.

The Spanish operator, which owns a fixed-line network service provider in Germany, was forced to abandon its mobile phone activities in the country a couple of years ago after its 3G (third-generation) mobile phone venture failed.

Through O2, Telefonica acquires Germany’s fourth largest mobile phone company, O2 (Germany) GmbH & Co. OHG.

If the Spanish company had succeeded in buying KPN, however, it would have acquired Germany’s third-largest mobile phone operator, E-Plus Mobilfunk GmbH & Co. KG, which the Dutch own.

O2 will retain its existing brand and continue to be based in the U.K., Telefonica said.

By John Blau, IDG News Service