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Ofcom: Three/O2 deal could mean higher mobile prices

Monday, February 1st 2016 by Ellen Branagh

The merger of Three and O2 could lead to higher prices for consumers, Ofcom’s chief executive has warned.

Sharon White said strong competition is key to ensuring UK consumers and businesses enjoy fair mobile prices.

The telecoms regulator has written to the European Commission, which is carrying out an in-depth investigation into the proposed merger to outline its concerns about the effects the deal could have on the UK’s mobile market.

Writing in the Financial Times, Ms White said: “Competition is the lifeblood of today’s telecoms market, spurring innovation, better coverage and fair prices.”

She said the competition between the four main networks in the UK means consumers can enjoy “innovative services and pricing”, with UK prices among the lowest in Europe.

“Ofcom, the UK communications regulator, aims to maintain that progress through competition," she added.

“So we are concerned that the smallest mobile network, Three proposes to become the biggest by acquiring its rival, O2.”

Combined, Three and O2 would create the UK’s largest mobile network, with 41% of the market share compared to EE’s 32% and Vodafone’s 24%.

The European Commission launched its in-depth probe into the planned merger amid concerns that it could lead to higher prices, less choice and reduced mobile innovation in the UK.

Ms White said a combined O2 and Three would control more than four in 10 mobile connections, following a pattern of mobile mergers in Austria, Ireland and Germany that would leave the UK with just three networks.

Ofcom analysis of mobile prices over recent years in 25 countries showed that average prices are around 10-20% lower in markets with four operators and a so-called “disruptive player” than those with three established networks.

“First, the deal could mean higher prices for consumers and businesses,” said Ms White.

“To date, Three’s owner Hutchison has often acted as a ‘disruptive’ operator, successfully challenging established players through innovation and low prices.

'Healthy rivalry'

“Second, the UK’s networks would face disruption. Recently, the four operators have combined their cables and masts into two networks — one used by Three and EE, the other by O2 and Vodafone.

“This works well: the four companies are still effective retail competitors, who compete independently on coverage and quality. Any merger would threaten that arrangement.”

A third concern relates to the high street, with a combined O2 and Three potentially shifting the “balance of power between mobile networks and the independent retailers who help constrain the price of mobile handsets and bills.”

Ms White said many of Ofcom’s concerns relate to competition between operators who own networks – the only companies who can help improve mobile signal and coverage.

She added: “While the merger is reviewed, Ofcom will keep working to promote healthy rivalry between operators.

“We want UK consumers and businesses to enjoy fair mobile prices and cutting-edge products for years to come. For that, we need strong competition: the basis of protection and the incentive to progress.”

The acquisition of mobile network EE by BT has recently been given the go-ahead by the Competition and Markets Authority, making BT the UK’s largest fixed line and mobile provider.

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