Ofcom CEO: O2-Three Merger Is Threat To UK Mobile Market

Ofcom has raised fresh doubts as to whether the proposed £10.25 billion merger between Three and O2 will go ahead after the regulator’s CEO Sharon White suggested it opposed the deal, arguing it could result in higher prices, poorer levels of service and damage competition on the high street.

The takeover is currently being reviewed by the European Commission (EC) and the UK Competitions and Market Authority (CMA) has asked for permission to investigate amid fears that the reduction of four mobile operators to three will significantly impact the market.

These fears are heightened because Three has historically been the smallest player in the industry and has relied on being “disruptive” to survive.

Ofcom concerns

Hutchison Whampoa, parent company of Three, is arguing that Three and O2 would not be able to compete with Vodafone and a combined BT-EE as standalone companies, but White has previously said that the revenues generated and investments made by mobile operators suggest the market is not “broken”.

And now, writing in the Financial Times, White has confirmed Ofcom has voiced its concerns to the EC.

“We are concerned that the smallest mobile network, Three proposes to become the biggest by acquiring its rival, O2. The combined group would control more than four in 10 mobile connections,” she said.

Similar mergers have been given European approval in recent times, most notably in Ireland and Austria, but another deal between TeliaSonera and Telenor in Denmark was rejected after remedies could not be agreed upon. In all cases, the proposed mergers reduced the number of operators from four to three and White said that since the 2013 merger between Three and Orange in Austria, mobile prices had risen significantly.

Reduced competition

“We are analysing mobile prices over recent years in 25 countries. Our findings show that average prices are around 10-20 per cent lower in markets with four operators and a disruptive player than in those with only three established networks. Austria’s regulator says that, since the deal there, overall mobile prices have climbed 15 per cent and by 30 per cent for customers who only make calls and send texts.”

In addition to rising prices, Ofcom is also worried that operators will have less incentive to improve their networks. EE and Three share some mobile infrastructure, while O2 and Vodafone have a similar site sharing agreement. The regulator also has concerns that retail competition will be damaged as the balance of power shifts from independent retailers to the networks – resulting in increased prices for contracts and handsets.

“Many of our concerns relate to competition between operators who own the networks on which mobile phones rely,” she added. “Only these four companies can make your mobile signal faster, more reliable and widely available. Establishing a new mobile network might be one answer, but this would take time, and considerable investment.”

BT’s £12.5 billion takeover of EE was completed last week following clearance from the CMA. Ofcom had no significant objections to that particular merger.