A wave of consolidation affecting telecoms companies like Eircom and Vodafone is likely to result from yesterday's €26 billion deal between Spain's Telefonica and O2, which owns the second largest mobile phone company in the Republic.
O2, which has 1.5 million subscribers in Ireland, has accepted a €26 billion offer from Telefonica for its three mobile companies in Britain, Ireland and Germany. The deal is expected to take about 90 days to complete and other offers for O2 may yet emerge.
The deal could result in cheaper mobile calls and text messaging charges in Ireland as the new owners of O2 seek to build market share against the current market leader Vodafone.
Shares in O2 rose by 25 per cent in London yesterday which should benefit some of the 1,600 staff at O2 Ireland who participate in the company's share ownership plan.
Shares in Eircom rose by 5.2 per cent in response to the announcement with the markets starting to speculate that Eircom could be the next company to be bought out by a bigger European rival. Recently the finance company Babock and Brown took a 12.5 per cent stake in Eircom and there were also reports about a Swiss company making a bid.
The deal could herald further cuts in charges. Danuta Gray, chief executive of O2 Ireland, said charges had been going down over the last five years and she saw no reason for this to stop.
Ms Gray said the O2 brand would be retained, as would local management. "As far as we are concerned it's business as usual," she said.
She said Telefonica, which is the largest telecoms company in Spain, had a similar "style and culture" to O2. She said that because Telefonica was not already involved in Germany, the UK or Ireland, it should not face any competition queries from national regulators.
Most analysts agreed that the latest deal, which was done in a few days, would herald a significant shake-up of the industry. Telefonica are offering 200p for each O2 share, which represents a premium of about 22 per cent on O2's closing price last Friday.
This has fuelled speculation about the future of Eircom. "There is clearly something happening to the valuations of telecoms companies right now," said one market observer in Dublin yesterday.
O2 has been at the centre of takeover speculation since it de-merged from BT in 2001. Over recent years the Irish mobile market has effectively been dominated by O2 and Vodafone, which acquired Eircell from Eircom several years ago.
Meteor, the third mobile operator, has been slowly building market share, but it was recently the subject of a €420 million takeover offer from Eircom. That deal is currently being reviewed by the Competition Authority.
While mobile phone usage has reached record levels in Ireland in the last year, concern has grown about the amount of revenue the big companies are drawing from consumers. This issue has been repeatedly highlighted by telecoms regulator ComReg.