Liberty Global says Telefonica's O2 UK could be of interest

By Paul Sandle

LONDON (Reuters) - Liberty Global would consider buying Telefonica's O2 UK mobile network if Brussels blocks its agreed sale to CK Hutchison but said the cable group also valued the flexibility it had in its current strategy of being a virtual mobile operator.

Sources familiar with the matter have said EU antitrust regulators are set to veto Hutchison's 10.3 billion-pound deal to buy O2 UK as it would reduce the number of mobile network operators in Britain to three from the current four - EE, O2, Vodafone and Hutchison's existing network, Three UK.

Liberty's chief executive, Mike Fries, said he looked at all options when asked by an analyst on a results conference call whether O2 UK would be of interest as a possible acquisition if the opportunity arose.

"It would be strange if we didn't evaluate that option, but I can't give you any colour on that," he said.

"(But) we like our current plan, and while I like optionality I am not particularly fond of options that preclude optionality.

"So we are going to be thoughtful not just about the economics of a transaction ... but also looking three, four, five years down the road; 'what is the right plan for us?'. And that's what we are doing in every market for mobile."

For its mobile service Liberty Global's British arm Virgin Media currently piggybacks under a contract which lasts until 2018 on EE's network, now owned by Internet and TV services rival BT.

Last year Liberty was in talks with mobile giant Vodafone about combining operations in as many as seven European markets, only for the two groups to settle earlier this year for a far less ambitious tie-up confined to the Dutch market.

Telefonica said last month it had plenty of options for O2 UK if the Hutchison deal falls through, including finding another buyer for all or part of the business, a stock market listing, or investing further in the group to better compete in the converging market for bundled packages of mobile and fixed line telephony, broadband Internet and TV services.

RESULTS

Fries was speaking after Liberty Global reported first-quarter results late on Monday.

Analysts at Citi said Liberty had delivered a "solid first quarter", with a 3 percent rise in revenue to $4.6 billion beating forecasts of $4.45 billion.

Operating cash flow (OCF) also increased by 3 percent to $2.1 billion, the company said, and it reiterated its target to grow OCF by 5-7 percent for the full year.

Fries said the group had increased subscriptions for products like broadband and voice services by 135,000, driven by a stand-out performance in Britain, where Virgin Media had it best quarter in terms of subscriptions for six years.

Liberty's Nasdaq-listed shares were trading up 0.4 percent at $37.53 at 1700 GMT.

(Editing by Greg Mahlich)