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Proposed merger of Three and O2: No immediate effect on customers

Monday, January 26th 2015 by Ellen Branagh

A merger between Three and O2 may seem highly likely, but it will be some time before customers of either company see any changes, according to experts.

On Friday both companies confirmed that Hutchison Whampoa, which owns Three, has entered into exclusive talks with O2 owner Telefonica about a potential acquisition of the company’s O2 UK business.

A deal is likely to attract regulatory attention, as a merger will see Three become the UK’ s largest mobile network, with 41% of the market share ahead of EE’s 32% and Vodafone’s 24%.

It was originally thought that BT could buy O2, but in December the telecoms giant announced it was in talks to buy EE for £12.5bn.

Asked about the effect a Three/O2 merger would have on consumers Oliver Johnson, from market intelligence firm Point Topic, told Cable.co.uk: “Well it won't change for consumers for a while.

“UK and European competition commissions are likely to have a say, but I think they'll both go ahead if all parties are serious.

“We need the mobile companies too much to allow them to fall apart if they can't compete and that means allowing consolidation. Not too big to fail but too important to fail, definitely.”

Mr Johnson said a merger might help with infrastructure investment, although regulation will be important to ensure competition. The deal is “symptomatic” of conditions in the UK and Europe at the moment, he added.

“It's hard without real scale to make money in mobile these days. Margins are so thin that you need north of 30% of the market before you can really go forward with confidence.”

John Delaney, associate vice president of mobile research at IDC, who previously said BT’s plans to buy EE may lead to the firm having to give up some of its spectrum, agreed that it will be some time before mobile users notice any changes.

Changes over time

“As far as what consumers see in the short-term, I suspect the answer would be not very much change,” Mr Delaney said, but added in the long-term there are likely to be shop closures in areas where there are a Three and O2 store close to each other as the merged company consolidates itself.

“Over time I should expect to see changes but for the period after the merger, if it goes ahead, I suspect that from the consumer’s point of view things will look very much the same,” he said.

Mr Delaney warned a Three/O2 merger and the BT/EE deal could leave Vodafone in a difficult position, although it may be looking to strike its own deal with a fixed line operator as it has done in other European markets.

“It would be one way of trying to redress the balance of it in a UK market where BT owns EE and Three and O2 have merged.”

Asked if UK consumers are likely to see price rises due to a reduction in competition in the mobile market, he said in similar situations in Europe there were not necessarily price rises, but a “reduction in the intensity of price competition following”.

“It’s too early to tell, even if the merger does go ahead,” Mr Delaney added.

“You can do no more than speculate.”

In a statement on its website on Friday, O2 said: “Three is known for campaigning on behalf of its customers, much like O2. “We are confident that an agreement will mutually benefit the customers of both companies, as well as drive better value, quality and investment in one of the most digitally competitive countries in the world.”

A statement on Three’s website said: “Any acquisition is likely to be a lengthy process. It’s business as usual at Three. We remain focussed on making mobile better for consumers in the UK.

“We are confident that if final agreement is reached it will benefit the customers of both companies.”

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