BT in talks with Telefonica to buy O2

Britain’s second-biggest mobile network, sold O2 in 2001 and the phone operator was bought by Telefonica for £17.7bn in 2005

"We continue to develop our own plans for providing enhanced mobile services to business and consumer customers, in line with our previous announcements,” BT said in a statement.

“We remain confident of delivering on these plans and have also been exploring ways of accelerating them, including assessing the merits of an acquisition of a mobile network operator in the UK.

"We have received expressions of interest from shareholders in two UK mobile network operators, of which one is O2, about a possible transaction in which BT would acquire their UK mobile business.”

BT will re-enter the UK mobile market in 2015 with its own consumer network, based on a wholesale agreement with EE.

According to reports in the Spanish press, Telefonica could end up with a 20% stake in BT in exchange for O2 and that would value the deal at roughly £10bn.

BT could break the market

The above report cited Telefonica chief Cesar Alierta as emphasising the need to fend off possible new arrivals from the other side of the Pond, in particular AT&T, as the main driver of the talks. Last Thursday, Alierta reportedly said the "US has no interest in there being European internet giants".

For his part, at a conference hosted last week by Morgan Stanley, Alierta's lieutenant, Jose Maria Alvarez Pallete, said all the options were on the table for O2, including a sale, should the trend in the market move further in favour of bundling services. In the opinion of Alvarez, BT has the ability to break the market.