O2’s £10bn float plans hinge on spectrum auction rules

o2 arena

The operator is understood to be debating with advisers and its Spanish owner Telefonica about whether it could seek a float in the window between Easter and the summer break, the Telegraph reports. The decision is likely to depend on whether Ofcom agrees to make it more difficult for BT and Vodafone to dominate the sale of radio spectrum rights, according to informed sources.

O2 is lobbying for operators to be restricted from buying more than 35 per cent of the airwaves on offer in two frequency bands later this year. The regulator has so far proposed a 42 per cent cap in only one of the bands but is considering responses to a consultation.

City sources with knowledge of Telefonica’s deliberations said that tighter restrictions could lay the ground for a run at the stock market. The Spanish giant is exploring ways to cash in on O2 while maintaining control, as part of an effort to pay down heavy debts. It came close to triggering a float of O2 before Christmas, but backed out as market volatility increased.

Sources said that even if Ofcom does agree to some or all of O2’s demands on radio spectrum, there was no guarantee it will pursue a listing before summer.

A City source said: “If you get some good news there you can have an argument about whether you actually wait for the outcome of the auction later in the year or market an IPO right away with that wind at your back.”

It is understood the company has lined up independent non-executives for its board if it returns to the stock market. It was first listed as a spin out from BT in 2001, before Telefonica swooped for a takeover in 2005.

Ofcom is due to unveil its final proposals for the crucial radio spectrum auction next month. The regulator is seeking a way to curb BT and Vodafone’s dominance of the airwaves, which allows their networks more capacity and higher speeds, while avoiding a potential High Court challenge that could slow down the development of next generation 5G services.

O2 sought to underline continuing growth in its customer base as Telefonica announced its full-year results. Britain’s second-biggest mobile operator added 119,000 monthly contract customers in the fourth quarter to take its total to 25.5 million, up 1.8 per cent year-on-year.

Fourth quarter sales were up 2.4 per cent to £1.5bn as Britons’ rising demand for data continued to nudge bills up.

Mark Evans, O2’s chief executive, said the performance showed O2’s strategy of focusing on mobile service rather than bundling contracts with broadband or pay-TV was working.

He trimmed more than 300 off the company’s workforce of 6,500 in the fourth quarter to reduce costs as underlying operating profit for the year increased 4.1 per cent to £1.4bn.

Jerry Dellis, a telecoms analyst at Jefferies, said a slowdown in 4G customer growth suggested O2 needed to invest more in its network. Telefonica’s stretched finances have meant its UK arm has been thrifty in recent years relative to BT and Vodafone.

Mr Evans highlighted a bumper network investment in the last 12 months. Capital expenditure for the year hit £760m, an increase of nearly a fifth.

The operator also announced a 10-year extension to its sponsorship of the O2 concert venue in Greenwich, London. The former Millennium Dome is run by the US venue owner AEG.