Telefónica Rings a Big Bell

BusinessWeek reports on Telefónica's bid to buy O2, a pure-play wireless carrier with 25 million customers in Britain, Ireland, and Germany.According to the article, the $31.4 billion price tag ranks the deal as the second-largest all-cash offer in telecom history, after Cingular's purchase of AT&T Wireless.

Marta Muñoz Méndez-Villamil at Ovum said, "O2 was clearly going to be bought by somebody."

Mark Newman at Informa Telecoms & Media added, "Telefónica is diversifying its risk across a broader range of markets, not just Latin America."

The article cites research from Ovum that "the German market, where O2 ranks fourth behind T-Mobile, Vodafone, and KPN's E-Plus, generates $25 billion in revenue annually. Britain is even larger, at $28 billion, thanks to greater use of wireless-data services, and O2 is the No. 3 player in a market nearly evenly split among four fierce rivals."

Ovum's Muñoz said, "Telefónica had to do this deal,. It would have put them in a very weak position if they hadn't."

Informa's Newman opined that "Telefónica is used to being the leading player in the markets where it's present. It may not know how to play catch-up." That's a challenge the Spaniards better be ready tackle.