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Hong Kong telco responds to recent comments from Ofcom, makes three pledges around proposed 3UK/O2 tie-up.
CK Hutchison on Thursday made a series of promises in an attempt to win European Commission support for its planned acquisition of O2 in the U.K., including a pledge to freeze prices for five years, a hefty investment plan, and the sale of network capacity to enable more competition in the market.
The announcement comes as Brussels prepares to issue its statement of objections to the deal and just days after Ofcom CEO Sharon White expressed her opposition to the proposed 3UK/O2 tie-up, warning that the deal could, amongst other things, lead to increased prices for U.K. consumers.
On the contrary, said Canning Fok, co-managing director of CK Hutchison and chairman of 3UK, in an open letter. The merger "is the only way we can guarantee that five years from now customers will still be getting more and paying less for mobile services," he insisted.
The increased scale brought by the deal will enable 3UK/O2 "to stand up to the new Leviathan BT," Fok said, borrowing a phrase from TalkTalk CEO Dido Harding, as well as "to the old top-of-the-heap predator Vodafone."
To add credence to his statement, Fok said, Hutchison has made three promises around the company’s future in the U.K., the first of which sees it commit to freezing prices.
3UK/O2 "will NOT raise the price for consumers of a voice minute, a text or a megabyte in the five years following the merger," Fok said.
Interestingly, that pledge comes in the wake of the social media furore 3 triggered in the U.K. last week after phasing out certain legacy tariffs and moving customers to other, more expensive, options.
It also seems to refer specifically to unit pricing, therefore it is unclear how it will really affect the cost of the telco’s voice, SMS and data bundles – used by most customers – going forward.
Hutchison’s second promise refers to investment. The company announced that it will invest £5 billion (€6.6 billion) in its U.K. mobile operations over the next five years which, it claims, is at least 20% more than 3UK and O2 would have invested separately.
Fok said this investment means that capacity, coverage, reliability, and data speeds will improve by more than if the two companies had not merged.
"For those who care to take an objective look, what we’ve done since combining 3 with Orange in Austria in 2013 provides empirical proof of this assertion," he said.
It is worth noting that Ofcom’s White highlighted Austria as a market in which mobile prices have risen since consolidation. Overall prices have increased by 15% she said, citing the country’s regulator.
Finally, Hutchison said if it gets the go-ahead for the merger it will sell off slices of its network capacity to "enable other meaningful competitors in the U.K. market to offer services on a completely level playing field."
This, says CCS Insight principal analyst Kester Mann, will be the most closely examined of the three pledges at the European Commission.
"Today’s announcement is the first step, but it is unlikely to appease competition chief Margrethe Vestager, who has adopted a hard-line on in-market mergers," said Mann.
"More likely, CK Hutchison will need to facilitate the entrance of a new player to retain the status quo of four national network providers," he said. "As such, its pledge around selling slices of network capacity will be the most heavily scrutinised."
Indeed, Vestager famously stood in the way of Telenor and TeliaSonera’s plan to merge in Denmark on the grounds that the market needed four mobile network operators in order to remain competitive. Thus, the onus will likely be on Hutchison to convince her that its remedies will attract real competition.
While Hutchison will be prepared to go to significant lengths to make the deal happen, it will need to exercise some caution, Mann said.
In agreeing to any concessions, CK Hutchison will need to carefully assess the extent to which their impact would erase the benefits of the deal," he warned. "Encouraging the launch of disruptive French operator Free Mobile could mean that the advantages of the merger do not outweigh the risk."
Late last month the Financial Times reported that French businessman Xavier Niel, owner of Free parent Iliad, has approached Ofcom about a possible entry into the U.K. via the acquisition of assets divested by 3UK/O2.
There has been no official confirmation from either party though.
