News
The European Commission announces decision to block proposed O2/3 UK merger.
CK Hutchison said it is considering its options, including a possible legal challenge, after the European Commission decided to block the Hong Kong-based company’s proposal to buy O2 UK and merge it with 3 UK.
In a short statement issued after the EC announced the ruling, CK Hutchison said it was “deeply disappointed” that the commission had decided to prohibit the merger between 3 UK and O2 UK.
“We strongly believe that the merger would have brought major benefits to the UK, not only by unlocking £10 billion of private sector investment in the UK’s digital infrastructure but also by addressing the country’s coverage issues, enhancing network capacity, speeds and price competition for consumers and businesses across the country and dealing with the competition issues arising from the current significant imbalance in spectrum ownership between the UK’s MNOs,” the company added.
Commenting on its ruling, which was reached after an in-depth investigation lasting several months, the EC said it had strong concerns that UK mobile customers would have had less choice and paid higher prices as a result of the takeover, and that the deal would have harmed innovation in the mobile sector.
The deal would have combined Telefónica UK’s O2 and Hutchison 3G UK’s 3, creating a new market leader in the UK mobile market and reducing the total number of mobile network operators from four to three.
Margrethe Vestager, the commissioner in charge of competition in the European Union, said allowing Hutchison to take over O2 at the terms proposed would have been bad for UK consumers and bad for the UK mobile sector.
“We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal. It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this,” Vestager said.
What this all might mean for the players involved
CK Hutchison said it would now focus on working with the commission towards clearance of its proposed merger with Wind and 3 Italia in Italy, although that deal now looks increasingly in doubt because of the EC’s clear resistance to transactions that reduce the number of mobile network operators within a market from four to three.
Telefónica, meanwhile, issued a short statement that essentially stressed its commitment to its O2 business – at least for the time being.
“The O2 business has continued to perform well in the market whilst the commission process has taken place. Our customers are our priority and we will continue to differentiate, compete fiercely and remain successful, long into the future,” an O2 spokesperson said.
Reactions to the EC decision came fast and furious. CCS Insight principal analyst Kester Mann noted that the collapse of the deal leaves both 3 and O2 in a precarious position with uncertain futures in the UK.
“It also casts serious doubt over the future structure of a European telecoms sector that had banked on the tie-up paving the way to further consolidation,” Mann said.
He added that the most likely eventual outcome for O2 is a sale to private equity, but noted that Liberty Global, which owns Virgin Media, could consider a bid.
“Sale or partial-sale to a deep-pocketed operator from outside the UK such as Softbank or America Movil is also plausible. For the time being however, O2’s parent Telefónica may elect to hold on to an asset that in recent years has impressively out-performed rivals despite its uncertain future,” Mann said.
Telecoms consultant Bengt Nordstrom was also critical of the EC decision, saying it would not bring about the commission’s desired outcome for the UK mobile market.
“Continuing as things stand will not lead to competitive prices, better service and more choice for consumers. It also won’t encourage operators to continue investing in their mobile networks to deliver a high quality of service to customers,” Nordstrom said.
In his view, consolidation in the telecoms sector is inevitable: “The European Commission cannot prevent it: it can only delay it. A mature national market like the UK cannot sustain four mobile operators indefinitely. It’s unlikely that we’ll see new operators entering and disrupting the market either, since the barrier to entry increases every year,” Nordstrom said.
