CMA Predicts ‘Long Term Damage’ If Three-O2 Merger Approved

CK Hutchison’s proposed £10.25bn merger of Three and O2 has suffered another blow after the UK Competition and Markets Authority (CMA) said no realistic remedy could address concerns that the purchase would significantly impact competition in the retail and wholesale telecoms markets.

In a letter to the European Commission (EC), which is currently investigating the proposed transaction, the CMA said that UK consumers would suffer from higher prices and a lack of innovation as the number of mobile networks would fall from four to three.

Hutchison has submitted a number of potential remedies in a bid to gain approval for the deal, including the promise of providing significant network capacity to Sky and Virgin Media in order to boost the latter’s mobile virtual network operators (MVNOs).

Three O2 merger

Three’s parent company has also pledged to freeze prices for five years after the takeover and invest £5 billion in the combined network. Its argument is that a third major player would be better able to compete with Vodafone and BT-owned EE.

However the CMA said that nothing short of a sale of assets would address the potential imbalance in the market. It is particularly concerned that the merged entity’s presence in both the Beacon (O2 and Vodafone) and MBNL (Three and EE) could lead to “coordination.”

“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,” said Alex Chisholm, chief executive of the CMA.

“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.

“The CMA urges the Commission to act to prevent the long-term damage to the UK mobile telecoms market, and therefore to the interests of UK consumers, that both of our authorities have predicted will result from this merger.”

Ofcom CEO Sharon White has already expressed her concerns about competition in the mobile market, suggesting that the combination of O2 and Three, the latter of which is the UK’s smallest mobile operator and has traditionally had to be disruptive in order to compete, could lead to higher subscription fees.

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. Last week, a proposed merger between Orange and Boyuges Telecom was also abandoned.

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