Spanish telecoms giant Telefonica is talking to Hong Kong-based Hutchison Whampoa about a potential merger of their respective UK mobile subsidiaries, O2 and 3, the Financial Times (FT) writes, after Hutchison’s MD Canning Fok earlier this month announced that European consolidation was a top priority for the 3 Group following a corporate restructuring designed to make more funds available. Telefonica is considering its options after UK incumbent BT rejected the idea of purchasing Britain’s second-largest mobile network operator (MNO) by subscribers O2 UK in favour of chasing a deal with its larger rival, Orange-Deutsche Telekom joint venture EE last month, and a person with knowledge of the situation was quoted by the FT as saying ‘everyone is still speaking to everyone,’ including 3 UK (the country’s smallest of four MNOs by users) and other prospective merger candidates including pay-TV/fixed line/broadband providers Sky and TalkTalk. There also exists the option for Telefonica to list O2 on the UK stock market. UBS has been advising the Spanish group on its options since last autumn. The source cited by FT stressed that no deal was on the table yet for an O2/3 UK merger, while there was no urgency ‘given a deal between BT and EE would be unlikely to conclude until 2016.’ The price tag for O2 UK is likely to exceed GBP8 billion (USD12.1 billion), according to analysts cited in the report, which adds that Telefonica is said to prefer cash rather than shares in a merged group because it needs to reduce debt.