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CMA voices 'serious concerns' over Three/O2 merger

Tuesday, April 12th 2016 by Phil Wilkinson-Jones

The competition watchdog has voiced “serious concerns” over the proposed merger between Three and O2.

The Competition and Markets Authority (CMA) said the deal, if allowed to go ahead, would cause long-term damage to the UK’s mobile telecoms market.

Hutchison Whampoa, the company that owns Three, wants to buy O2 in a deal that would create the UK’s largest mobile network with a 41% market share.

But in a letter to the European Commission, the CMA’s chief executive Alex Chisholm said it would lead to increased prices and a worse service for consumers.

The Commission opened an in-depth investigation into the proposed merger in October despite the CMA requesting to carry out the probe itself.

Earlier this year, Ofcom warned that the merger could lead to higher prices for consumers – and suggested that the average cost of a mobile contract in the UK could go up by as much as 20%.

Three has promised to freeze its prices for five years should the merger go ahead and pledged to invest £5bn in the businesses.

But the CMA said Three’s offers “fall well short” of what is required.

“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,” wrote Mr Chisholm.

If the deal was to go ahead, it would leave the UK with only three mobile networks – EE, Vodafone and the combined Three/O2.

There are a number of virtual mobile operators including Virgin Mobile and Tesco Mobile, but these rely on the network infrastructure of an MNO.

'Counterbalance'

Mr Chisholm said the merger should only go ahead if part of either Three or O2 is divested to an alternative buyer, creating a fourth MNO.

He said the only other option available to the European Commission is to block the deal completely.

“The CMA urges the commission to act to prevent the long-term damage to the UK mobile telecoms market, and therefore to the interests of UK consumers, that both of our authorities have predicted will result from this merger,” he said.

Virgin Media CEO Tom Mockridge said a combined O2/Three would provide a "counterbalance" to the strength of BT/EE, whose merger was given the provisional green light in October by the CMA.

“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," he said.

"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 counter balance to the strength of BT/EE, offering an alternative source of capacity to other providers who will drive competition in their own right.”

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