Three and O2’s £10.5bn merger not allowed in UK, says EU

11 May 2016

O2 building in the UK, via Wikimedia Commons

One of the biggest telecoms deals in Europe has been blocked at the final hurdle after the European Commission said the Three-O2 merger would be “bad” for the sector.

Much to the relief of both the UK Competition and Markets Authority (CMA) and Ofcom, the £10.5bn deal to combine Hutchison Whampoa’s Three with Telefonica’s O2 network has been blocked by the European Commission (EC).

In what will probably add more fuel to the Brexit argument, the merger would have led to less choice and higher prices for consumers, according to the EC – essentially reducing the number of operators from four to three.

Competition commissioner Margrethe Vestager said the EC wants the telecoms sector to be competitive, and the idea of EU ‘merger control’ is to keep competition strong, not make it weak.

Bad for the customer

“Allowing Hutchison to take over O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector,” she said, citing “strong concerns” that choice would be reduced, while costs would rise.

What makes this interesting is the pending deal in Italy between Hutchinson’s 3 Italia and VimpelCom’s Wind Group. The EC is essentially ruling out market consolidation that would result in less than four major operators.

“Instead of relying on acquisitions, operators must work to better service their customers themselves,” said OpenCloud’s Jonathan Bell.

Ofcom had already claimed that four operators were needed for fair competition and a decent consumer environment. Last month, the CMA weighed in with a letter of its own.

In laying out its “serious concerns”, CMA chief executive Alex Chisolm said “significant harm to competition” in the UK would likely result in increased prices or a drop in quality for customers.

Some sad faces

However, it’s not just Hutchison Whampoa and Telefonica unhappy by the finding, with telecoms company Haud similarly displeased.

“Despite the EU stressing its commitment to not over-stretching licenses, the fact remains that if we want to boost investment, not to mention retain reliable and secure services, mergers such as this should be accommodated,” said CEO Claire Cassar.

Meanwhile, Liberty Global, which owns Virgin Media, is interested in buying O2 now that Three is out of the way. “It would be strange if we didn’t evaluate that option,” said Mike Fries, chief executive of the company.

Gordon Hunt was a journalist with Silicon Republic