Update: Telefónica to buy Britain’s O2 for $31.4 billion

Spain’s Telefónica said on Monday it has agreed to buy British mobile phone group O2, which owns network operators in the U.K., Germany, Ireland, and the Isle of Man.

Telefónica will pay £17.7 billion ($31.4 billion) for O2, Telefónica said in a statement published on the Web site of the London Stock Exchange.

The deal ends speculation about O2, which has been courted by several operators, including Koninklijke KPN of the Netherlands and Germany’s Deutsche Telekom.

The German and Dutch operators declined to comment on whether or not they would make a counter-offer for O2.

It also ends speculation about Telefónica buying KPN. The Spanish telecommunications company had been rumored to be willing to pay €20 billion for the Dutch company.

In a conference call with financial analysts, Telefónica Chairman César Alierta said if the deal goes through with O2, the Madrid-based group had no plans to make any other major acquisitions in Europe.

The deal, the largest in Europe since 2001 when Vodafone Group acquired Orange for more than $41 billion, is subject to regulatory approvals, among other conditions. Telefónica expects to close the deal in January 2006, it said.

Telefónica is keen to break into the German and U.K. mobile markets, two of Europe’s largest, it said.

The Spanish operator, which owns a fixed-line network service provider in Germany, was forced to abandon its mobile phone activities in the country a couple of years ago after its 3G (third-generation) mobile phone venture failed.

Through O2, Telefónica acquires Germany’s fourth largest mobile phone company, O2 (Germany).

“O2 is an excellent company that, driven by a top-class management team, has been able to become one of the highest growth mobile operators in Europe,” Alierta said.

If the Spanish company had succeeded in buying KPN, however, it would have acquired Germany’s third-largest mobile phone operator, E-Plus Mobilfunk, which the Dutch own.

O2 will retain its existing brand and continue to be based in the U.K., Telefónica said. The operator was spun out of BT Group in 2001.

The integration of O2 into Telefónica will help the Spanish group achieve synergies in areas such as equipment procurement and to expand its customer base by about 25 million customers to a total of 170 million, including customers in its Latin American operations, Alierta said.