European Commission blocks Three-O2 merger

European Commission blocks Three-O2 merger

The European Commission today announced that they were blocking the proposed takeover of O2 by Hutchinson (Three’s parent company) due to the strong concerns that it has over the impact that this merger would have on competition in the UK market.

The proposed deal was first agreed in March 2015 but has been blocked, with the Commission citing strong concerns that customers would have faced less choice and acted as a hindrance to innovation and network infrastructure investment.

The Commission’s investigation into the deal has lasted several months and was seen by several observers as a battle between DG Competition, who are responsible for making these decisions and have opposed similar deals recently, and DG Connect which has been speaking about the need to increase investment levels in telecoms and appeared to be more open to the deal. Hutchinson were always likely to be fighting an up-hill battle given that both Ofcom and UK’s own Competition and Markets Authority were stringently opposed.

The Commission outline three major concerns;

  • That moving from four operators to three, leads to higher prices with reduced choice and quality for consumers.
  • The merger would have hindered network infrastructure developments given the new entity would be part of both network sharing arrangements MBNL (EE and Three) and CTIL (Vodafone and O2).
  • Reduced the number of operators willing to host MVNOs which could lead to higher wholesale prices and less favourable terms.

Hutchinson made several concessions, particularly around MVNOs, that had attracted support from Sky, TalkTalk and Virgin Media but these clearly did not satisfy the Commission’s concerns who were likely pushing for the new entity to divest itself of infrastructure and spectrum to a new entrant – maintaining the level of operators as four.

It is likely that Hutchinson will take legal action but it appears as though Telefonica/O2 will now have to look at alternative options.

All of this plays into wider issues on sustainable levels of competition that the BSG are committed to exploring.