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Breaking: EC blocks Three/O2 merger

James Pearce
May 11, 2016

European Commissioner Margethe Vestager expressed “strong concerns” that UK mobile customers would have had less choice and paid higher prices as a result of the deal

The European Commission has blocked CK Hutchison’s proposes £10.25 billion takeover of O2, citing concerns over competition.

European Commissioner Margrethe Vestager prohibited the deal, which has been subject to over a year’s worth of negotiations between the Three-owner and Brussels, saying the deal would have harmed innovation in the mobile sector.

Hutchison had offered a number of concessions in an attempt to push through the acquisition of Telefonica’s UK assets, including offering up to 30 per cent of its combined spectrum, but Vestager claimed it had failed to adequately concerns with the merger.

One major objection was that the deal would result in the number of operators in the UK falling from four to three, a concern raised by both Ofcom and the Competitions and Markets Authority who advised the EC to reject block the takeover.

Commissioner Vestager, in charge of competition policy, said: “We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality. The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses.

Margrethe Vestager“Allowing Hutchison to takeover O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector. We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal.

“It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this.”

Three reasons

Vestager outlined three major reasons why she had chosen to reject the takeover, which would have created the UK’s biggest mobile provider with around 34 million connections.

These were:

  1. Less competition leads to higher prices and reduced choice and quality for consumers;
  2. Future development of entire UK mobile network infrastructure hampered;
  3. Reduced number of mobile network operators effectively willing to host virtual operators.

Proposed remedies offered by Hutchison included offloading spectrum to Sky and Virgin Media, selling O2’s 50 per cent share of Tesco Mobile to the grocery giant, and giving access to a share of the merged entity’s network capacity to one or two mobile virtual operators.

The Commission said these remedies did not resolve the structural problems created by the disruption to the current network sharing agreements in the UK, a concern that had been raised by Vodafone Group CEO Vittorio Colao.

Hutchison said it was “disappointed” by the EC’s decision, and would consider a legal challenge.

It comes just months after BT completed its £12.5 billion takeover of EE, which was also announced at the beginning of last year, following approval from the CMA.

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