Consumers “robbed” by EU merger block

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Three CEO Dyson hits out at decision to prevent CK Hutchison’s £10.25bn acquisition of O2

Three has hit out at the European Commission, claiming it has “robbed” UK consumers of what could have been the best mobile operator in Europe after blocking its acquisition of O2.

“The opportunity to take ours and O2’s relatively modest spectrum portfolio, together with the sites that we both had, would have arguably created the best mobile operator in Europe, with more capacity, more quality and faster speeds,” said the operator’s CEO Dave Dyson in a surprise outburst last week during a media briefing in London.

It is the first time Three has spoken publicly since the EC announced that it had blocked CK Hutchison’s proposed £10.25 billion takeover of O2 on May 10. Three had spent more than a year negotiating with Brussels to get the deal over the line, including offering up 30 per cent of its combined spectrum in the UK to its rivals.

European Commissioner for Cometition Margrethe Vestager
European Commissioner for Cometition Margrethe Vestager

Reduced competition

However, European Commissioner for Competition, Margrethe Vestager, prohibited the acquisition, with one major objection being that it would have reduced competition in the market, a concern raised by Ofcom and the Competition and
Markets Authority.

Vestager added that allowing the deal at the terms proposed would have been “bad for UK consumers and bad for the UK mobile sector”, claiming it would have hampered innovation and the development of network infrastructure in the UK, which was a “serious concern”.

However, a riled Dyson hit back, citing a decision to approve a joint venture in Italy between CK Hutchison and VimpelCom (owner of WIND), potentially reducing mobile operator numbers in the country from four to three and creating Italy’s largest with some 33 million customers.

He also argued that a merger between Three and O2 would have catered for the increasing demand for increased network capacity. It would have seen the two mobile operators have more than 30,000 mast combined. Three carries 39 per cent of the UK’s mobile data traffic, while its customers use on average 5.4GB of data each every month.

Robbed

“UK consumers have been robbed of what would have been the best mobile infrastructure in Europe,” said Dyson. “It will take a while to build out that infrastructure and I have no doubt that Italy will end up with a far better infrastructure in the short term than UK consumers are going to experience.

“The opportunity about the merger with O2 was fundamentally about scale.
It presented us with the opportunity of acquiring 25 million customers very quickly and we could obviously have grown much faster than we could grow organically. This would in turn have given us more efficiency which would in turn have enabled us to compete against the merged BT/EE.

“You’ll be aware of the trends around data consumption and they are pretty phenomenal – consumers want more and more data, as well as faster and faster speeds.

“For us, that was really important because most industry observer expectations are that data consumption is going to accelerate and not slow down. If you are strong in terms of capacity and quality perspective, you will have a great position in the market and provide consumers with what they really want.

“With the technology and ways we could have brought the networks together, we could have dramatically increased the speeds compared to what we could offer as a standalone operator without any new spectrum coming on board.”

CK Hutchison were prepared to pay £10.25 billion for O2
CK Hutchison were prepared to pay £10.25 billion for O2

Challenge the market

Dyson claimed there isn’t another merger and acquisition (M&A) deal in the pipeline and although it will consider any viable opportunities that emerge, Three will for now focus on organic growth and “challenge the market” as it has done in the past.

Its figures over the past four years suggest this is a strategy that has been successfully deployed, with profit and customer numbers improving every half-year period.

Profits for H1 have more than trebled to £348 million, with Three on track to hit £700 million for this year, compared to £685 million last year and £281 million four years ago.

It has added 2.2 million customers over that period to take its base to 9.6 million. Contract numbers have gone from 5.1 million to 6.1 million, while prepay subscribers have increased from 2.3 million to 3.1 million.

According to Ofcom, it has gone from being the most complained about network in Q1 2013 with 14 complaints per 100,000 to joint best alongside with three complaints per 100,000 customers.

Moving on

Dyson concluded: “The decision on our merger with O2 has been made, we have to accept that decision, move on and work with what we have got. We are now very much focused on doing the best with the infrastructure that we have got.

“We still have a very supportive shareholder and amazing employees within
the organisation. We need to marry those up and see how far we can push.”

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