CMA agrees Three's takeover of O2 UK would 'raise prices, reduce quality, harm competition'

Earlier this year, the UK's Competition and Markets Authority (CMA) gave its approval to a major acquisition in the communications industry, allowing BT - the country's largest fixed line and broadband provider - to buy EE, Britain's biggest mobile network operator, in a deal worth £12.5 billion. However, the CMA has given a resounding thumbs-down to another proposed mega-deal in the UK mobile market, on the grounds that it would restrict competition, leading to price rises for customers.

It's now been over a year since Hutchison Whampoa, parent company of Three UK, confirmed its plans to acquire O2 UK from Spanish telecoms giant Telefónica. The two companies agreed the terms of the £10.25 billion deal in March 2015, but it can't proceed further without approval from regulatory authorities.

CMA Chief Executive Alex Chisholm said today - in an open letter (PDF) to Margrethe Vestager, Europe's Competition Commissioner - that the merger between the two networks "would give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the United Kingdom."

Chisholm also emphasized the CMA's support for concerns raised by UK telecommunications regulator Ofcom, and by the European Commission (EC) itself, earlier this year:

The EC statement of objections clearly detailed how this merger is likely to lead to increased prices and/or a reduction in the quality offered to UK consumers as a result of significant harm to competition in the UK mobile telecoms market.

Since the EC documented its objections to the deal in February, the two companies have had time to consider how best to deal with the concerns raised by regulators. Indeed, Hutchison Whampoa attempted to preempt some of the potential sticking points by proposing a five-year price freeze for Three and O2 customers in the UK.

However, the CMA clearly isn't impressed by the way that the two companies have responded to the issues raised by the authorities. Chisholm said that "the remedies offered fall well short of what would be required to meet the relevant legal standard", adding:

The proposed remedies are materially deficient as they will not lead to the creation of a fourth Mobile Network Operator (MNO) capable of competing effectively and in the long-term with the remaining three MNOs such that it would stem the loss of competition caused by the merger. In addition, they fail to address concerns arising from the presence of the merged entity in both the network sharing arrangements, including the greater risk of coordination that this brings.

He ended by saying that unless Hutchison Whampoa and Telefónica present a more appropriate remedy to directly address the anticipated negative impact on competition in the UK mobile market, "the only option available" for regulators would be to prevent the acquisition from going ahead.

If the deal were to be approved, it would create a 'super-carrier' with more customers than any other network - around 40% of UK mobile connections.

Source: GOV.UK (PDF) via Reuters

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