(Image Credit: iStockPhoto/simonkr)
The UK’s Competition and Markets Authority (CMA) has written to EU commissioner Margrethe Vestager urging the European Commission to reject the proposed merger between Three UK and O2, despite concessions offered by the companies. The CMA argues the remedies on the table would not prevent a substantial reduction in competition.
Alex Chisholm, Chief Executive of the CMA, wrote in the letter:
“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 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 network-sharing arrangements, including the greater risk of coordination that this brings.
The only appropriate remedy that would meet the criteria the Commission is bound to apply — namely that 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 business in its entirety, or possibly allowing for limited carve-outs from the divested business. The divestment would need to include mobile network infrastructure and sufficient spectrum to ensure a commercially viable fourth MNO in the UK. Absent such structural remedies, the only option available to the Commission is prohibition.”
Virgin Media, which has agreed to buy capacity on the combined Three/O2 network, responded strongly and criticized the CMA’s earlier approval of the BT/EE merger. Virgin’s CEO highlighted concerns about spectrum concentration and how that decision has made it harder for new operators to enter the market.
Tom Mockridge, Virgin Media CEO, said: “Less than three months ago the CMA approved the merger of BT/EE without remedies, despite concerns that this concentrated too much valuable spectrum in the hands of one provider. BT/EE now has 45% of total UK spectrum, including 60% of the higher-frequency spectrum best suited to 4G services, particularly in urban areas. In comparison Vodafone has 28% of UK spectrum, O2 has 15%, and Three has 12%. This is the very reason it is now difficult to create a new, fourth mobile network operator.
A combined O2/Three would provide a counterbalance to the strength of BT/EE, offering an alternative source of capacity to other providers who will drive competition in their own right.”
Three is the smallest of the UK’s mobile network operators and the only major provider without a fixed-line broadband offering, which limits its ability to sell multi-play packages. To persuade regulators, the company has proposed several concessions, including a five-year price freeze for customer bills, substantial network investment, and measures intended to enable competitors to use the improved network.
Hutchison Whampoa, owner of Three UK, sent a response to TelecomsTech outlining its objections to the CMA letter ahead of a full public statement. Key points included:
-
Disappointment that the CMA published a letter to Commissioner Vestager, which Hutchison says should not influence the formal merger control process.
-
The CMA and Ofcom have long opposed the merger, the company notes, and Hutchison believes the European Commission should assess competition concerns based on facts and the remedies proposed.
-
Hutchison contrasted the CMA’s stance with the regulator’s approval of the BT/EE merger without conditions, which the company argues created a powerful fixed‑mobile operator in the UK market.
-
The CMA’s insistence that only a fully independent fourth MNO is an acceptable remedy is, Hutchison says, unsupported by analysis. The company describes the CMA’s position as one-sided and preordained.
-
Hutchison maintains its proposed remedies go further than those accepted in previous mobile merger cases considered by the Commission.
-
Hutchison has agreements with Sky, Virgin, Tesco and UK Broadband to take up more than 40% of the combined network’s capacity, the company says, a point it claims the CMA failed to consider when evaluating the competitive impact of these committed partners.
-
The entry of several diverse and financially strong partners, Hutchison argues, will deliver meaningful competition and provide counteroffers that limit post-merger price increases.
-
Hutchison calls the divestiture of Three or O2 to create a new MNO a “red herring,” arguing there is no buyer prepared to take on such a business and that forced divestment would undermine the merger’s economic rationale while intensifying spectrum and capacity limitations.
-
The company describes the merger as an opportunity to strengthen UK mobile infrastructure, committing an additional £5 billion of investment. Together with investments by Sky, Virgin, Tesco and UK Broadband, Hutchison estimates total new private investment could reach about £10 billion.
-
Hutchison says consumers will benefit from wider choice and an improved network delivering faster speeds, better services and improved rural coverage. It highlights a proposed £5 “All You Can Eat” tariff for pensioners covering voice and text and reiterates a guarantee not to raise prices for the first five years.
-
Hutchison expressed confidence the Commission will evaluate the case on its merits and consider the likely impact of the remedy takers and new market entrants on competition and pricing in the UK mobile market.
Industry observers expect the Commission is unlikely to block the merger outright; instead it may attach significant concessions that could complicate or even scupper the deal. Given Hutchison’s determination to proceed, the company may accept substantial conditions in order to secure clearance.
Who do you side with on this debate? Share your thoughts in the comments.