No big deal? EC blocks O2/Three merger

CK Hutchison were prepared to pay £10.25 billion for O2

Following the collapse of the multi-billion pound sale, James Pearce looks what it means for the mobile operators and the rest of the space

It came and it went. Perhaps to the surprise of very few, the European Commission opted to reject the idea of creating a new mobile market leader by approving CK Hutchison’s £10.25 billion bid to buy O2.

The decision had been coming for a while. Both Ofcom and the Competition and Markets Authority had expressed opposition to the deal, claiming that reducing the number of mobile providers in the UK from four to three would harm competition. European Commissioner Margrethe Vestager, who oversaw the ruling, had previously expressed reluctance in this kind of deal.

But after BT’s £12.5 billion takeover of EE sailed through without any complications, Three-owner Hutchison could have been forgiven for expecting the same. Of course, it was the CMA who ruled on that, not Brussels, and that is where the problems started.

Muted response
So no surprises with the ruling, but what about the reaction? To say there was a muted response from dealers we spoke to is an understatement. Most we spoke to seemed unfussed about the outcome, saying they did not expect it to have a major impact on the channel.

This is far removed from when we spoke to them following the announcement of the deal, when a number of dealers expressed concerns about the impact Three’s potential re-entry into the B2B market could have had. Three’s track record with the channel was patchy at best, following its decision to withdraw from it just over four years ago.

Obviously, there is still a possible legal challenge from Hutch, but given the strength of the opposition from Brussels, this seems unlikely to succeed.

Business as usual
What does this mean for the industry? As Ronan Dunne said, for the time being at least, it is “business as usual”. Three will continue as the UK’s smallest operator, while O2 remains part of Telefónica.

In the longer term, it opens up several possibilities for other, non-mobile players to swoop in and snap up a network. Sky is planning an MVNO, but could look at a possible merger to help it compete with BT.

The same goes for Virgin, although both have repeatedly been linked with Vodafone.
Reports last week also claimed Illiad-owner Xavier Neil, who has previously expressed an interest in the UK market, could be a potential bidder.

There is also a distinct possibility that Telefónica won’t sell. Financially, the Spanish giant is in a much stronger position now than it was 18 months ago after seeing its debt stabilise at €50.2 billion.

Either way, it brings an end to a crazy 18 months of rumour, speculation and uncertainty in the market, leaving the UK mobile sector looking remarkably similar to how it did at the end of 2014.