The proposed merger between mobile service providers O2 and Three could risk causing “long-term damage” to the UK’s mobile telecoms market, according to a new letter from the UK’s Competition and Markets Authority sent to the European Commission.
Three, which is owned by Hong Kong-based investment firm Hutchinson Whampoa, was set to take over O2 in a deal worth more than £10 billion.
The merger would create the biggest single mobile network in the UK, but has faced opposition from regulators, which have suggested that it could lead to problems with competitiveness in the market.
As the CMA’s letter on Monday puts it, the merger “would give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the United Kingdom.”
The deal has been on the table for over a year, but is a long way from completion, and could be killed off by regulators. That has led Hutchinson to offer a series of concessions to try and push the deal through. The latest concessions, released last week, include selling parts of O2’s stake in Tesco mobile, and making substantial investments into UK mobile infrastructure, the Financial Times reported on Wednesday.
However, those concessions haven’t assuaged concerns on the CMA’s part, and Monday’s letter confirms that. Here are some extracts from the letter, sent by chief executive Alex Chisholm (emphasis ours):
“We believe this merger would give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the United Kingdom.”
“While I appreciate the considerable efforts made by the Commission to explore remedies with the merging parties that seek to eliminate the adverse effects identified, it is clear that the remedies offered fall well short of what would be required to meet the relevant legal standard, as detailed in our case submissions.”
“The only appropriate remedy that would meet the criteria that the Commission is bound to apply (i.e. that the remedies eliminate the competition concerns in their entirety, are comprehensive, effective and capable of ready implementation) is the divestment — to an appropriate buyer approved by the Commission — of either the Three or O2 mobile network businesses, in entirety, or possibly allowing for limited ‘carve-outs’ from the divested business. The divestment would need to include the mobile network infrastructure and sufficient spectrum to ensure a commercially viable fourth mobile network operator in the UK. Absent such structural remedies, the only option available to the Commission is prohibition.”
Effectively, the CMA is arguing that unless the mobile business of either O2 or Three is sold, it recommends that the European Commission blocks the deal entirely.
That wouldn’t be a hugely unusual move, with the commission blocking a merger of the Danish units of mobile networks
Telenor and TeliaSonera late last year. That deal would have reduced the number of telecoms groups from four to three in Denmark, much as the Three/O2 deal would in the UK.