Less than a week after the UK telecoms regulator Ofcom cleared BT’s controversial acquisition of EE, the European Commission has opened an in-depth investigation into the proposed merger of Hutchison-owned Three and O2 UK.
If approved, the deal would combine the UK’s fourth-largest and second-largest mobile operators and create the country’s largest mobile network by subscribers. Hutchison argues the merger is necessary to remain competitive: Three has limited spectrum, a relatively small subscriber base, and no fixed broadband network to offer bundled services, which it says threatens its long-term viability in the UK market.
Concerns about market concentration have grown following BT’s move to acquire EE, the UK’s largest mobile provider. Competitors worry that a series of mergers could leave the market dominated by a few large integrated players. Vodafone’s chief executive told the Financial Times that regulators should consider requiring merged companies to release spectrum or take other remedies to protect competition if deals proceed.
The merger would combine the UK’s fourth and second largest mobile operators
Regulators are particularly wary of the Three/O2 transaction because it would reduce the number of mobile network operators (MNOs) in the UK to three. This level of consolidation could lead to higher prices, fewer choices and slower innovation for consumers. Ofcom’s chief executive, Sharon White, has publicly opposed further consolidation, arguing that a four-player market has delivered strong consumer outcomes and sustainable returns for operators.
White also expressed reservations about the BT/EE deal, warning that BT could have incentives to favour EE over rival mobile providers when supplying network services.
The European Commission’s investigation will focus on three core concerns: whether the merger would substantially reduce competition between mobile operators; whether fewer MNOs would harm the wholesale market for mobile virtual network operators (MVNOs) and make it harder for them to access network capacity; and whether consolidation could create conditions that increase the risk of coordinated behaviour or higher prices.
Margrethe Vestager, the European Commissioner responsible for competition policy, said: “Mobile telecom services are increasingly important to consumers, both to keep in touch with family and friends, and to access online services. With this investigation we want to ensure that consumers in the UK do not pay higher prices or face less choice as a result of this proposed takeover.”
After receiving formal notification of the transaction on 11th September 2015, the Commission has 90 working days to determine whether the concerns justify further remedies or a prohibition, and to assess the overall impact of the merger on the UK mobile market and its competitors. The investigation will examine market shares, spectrum holdings, the conditions faced by MVNOs and potential efficiencies claimed by the parties.
The outcome could include conditions to protect competition, such as the divestment of spectrum or other assets, binding commitments to maintain wholesale access for MVNOs, or other measures designed to preserve choice and keep prices competitive for consumers.
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