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European Commission blocks merger of Three and O2

Wednesday, May 11th 2016 by Ellen Branagh

The European Commission has blocked the planned takeover of O2 by Three amid concerns that it would leave mobile customers with less choice and higher prices.

The decision follows an in-depth investigation by the commission into the deal, which would have created the UK’s largest mobile operator with a market share of more than 40%.

Both Ofcom and the UK’s own competition watchdog, the Competition and Markets Authority (CMA), had voiced concerns about the proposed merger.

Announcing its decision to block the deal today, the European Commission said the takeover would have removed an important competitor from the UK’s mobile market, leaving just two rivals – Vodafone and the newly-merged BT/EE.

The reduction in competition would have led to higher prices for mobile customers and less choice, as well as hampering the development of mobile infrastructure in the UK.

It would also have reduced the number of mobile operators that would host other providers – known as Mobile Virtual Network Operators (MVNOs) – on their networks.

Margrethe Vestager (pictured), European Commissioner for Competition, said: "We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality.

“The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses.

“Allowing [Three's owner] Hutchison to takeover O2 at the terms they 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.

'Serious concerns'

“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.”

She said “remedies” offered by Three’s owner Hutchison, which included offering wholesale agreements for a share of its network to MVNOs Tesco Mobile and Virgin Media, were not sufficient to address the commission’s concerns.

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

But the CMA previously said Three’s offers fell "well short” of what is required.

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.

His comments followed warnings by Ofcom that the average cost of a mobile contract in the UK could go up by as much as 20%.

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.

UPDATE: Three's owner CK Hutchison said it was "deeply disappointed" by the decision and would consider its options, including the possibility of a legal challenge.

"We strongly believe that the merger would have brought major benefits to the UK, not only by unlocking £10bn of private sector investment in the UK’s digital infrastructure but also by addressing the country’s coverage issues."

The company said it would also have enhanced network capacity, speeds and price competition for consumers and businesses.

It said the merger would have dealt with "competition issues arising from the current significant imbalance in spectrum ownership between the UK’s MNOs".

O2 said: "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."

Image courtesy of Friends of Europe/Flickr.

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