(Image Credit: iStockPhoto/Viktor_Gladkov)
After the European Commission rejected Three’s appeal in May to merge its operations with O2, the mobile operator is now seeking alternative ways to stay competitive in a market dominated by EE and Vodafone. The failed merger leaves Three needing new strategies to protect and grow its market position against larger rivals with more extensive resources.
Addressing investors at a business update, Three UK CEO David Dyson described the EU decision as a missed opportunity for UK consumers. “I think it was the wrong decision. UK consumers have been robbed of the best mobile infrastructure in Europe. Italy will end up with better infrastructure than the UK in the short term,” he said, arguing that the proposed combination with O2 would have delivered a larger network, greater spectrum holdings, wider coverage and faster data speeds for customers.
Dyson contrasted Three’s position with that of EE and Vodafone, which continue to lead the market by subscriber numbers and spectrum ownership. The situation was further complicated when BT, the UK’s largest fixed-line provider, gained approval to acquire EE, raising concerns about how smaller rivals will compete against the combined strength of larger groups.
At the update Dyson confirmed there will be no further attempts to pursue the merger. “We have to accept that decision, move on, and work with what we’ve got,” he stated, signaling a shift toward making the best of the company’s current assets and capabilities.
With a government spectrum auction on the horizon, Three is prioritising efforts to strengthen its position by seeking favourable treatment from the regulator. The operator hopes Ofcom will consider Three’s relative needs when allocating spectrum so smaller players are not disadvantaged. Dyson warned that allowing dominant rivals to acquire large amounts of spectrum could push up consumer prices and reduce competition across the market.
Stephen Lerner, Three’s general counsel and head of regulatory affairs, said the company expects legal challenges if Ofcom attempts to allocate spectrum in a way that benefits EE’s owners, BT and Vodafone. Lerner added that Three itself would consider legal action if the regulator decided to run the auction without placing constraints that protect competition.
Three faces a pressing need for additional spectrum that would enable expansion and improved service quality, and the company fears that a protracted legal dispute could see larger competitors emerge with greater spectrum holdings while Three is left with reduced financial resources and without the crucial assets it requires to compete effectively.
CK Hutchison, Three’s parent company, has long criticised Ofcom’s appeal rules and deemed the regulator’s processes weaker than those applied elsewhere. The government’s incoming Digital Economy Bill aims to reform the appeals framework to bring telecoms regulation into closer alignment with other sectors, potentially raising the standard for review and affecting future disputes over matters such as spectrum allocation.
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