EU Launches 'In-Depth' Investigation Into Three-O2 Merger

EC says it has competition concerns about £10.25 billion takeover of O2 by Three-owner Hutchison.

European Union

By Steve McCaskill

The European Commission (EC) has launched an in-depth investigation into Hutchison's proposed £10.25 billion takeover of O2 to look at concerns about whether concerns the deal might negatively impact the U.K. mobile market.

Hutchison applied for EU approval last month, but the Commission is concerned that the combination of O2 and Three—the UK's second and fourth largest mobile operators—would result in higher prices, less choice and reduced innovation.

It also suggests that as the largest U.K. operator, the combined entity would have less incentive to exert competitive pressure on its rivals, and the reduction of operators from four to three could mean the remaining players could be tempted to "coordinate" their behavior.

Three O2 Merger

This contrasts with the current situation where Three, as the youngest and smallest competitor, has aggressively disrupted the market with offers and new features. There are also fears that by taking away one provider of wholesale services, mobile virtual network operators (MVNOs) will be at a disadvantage when negotiating carriage deals.

"Mobile telecom services are increasingly important to consumers," said Commissioner Margrethe Vestager, in charge of competition policy. "Both to keep in touch with family and friends and to access online services. With this investigation, we want to ensure that consumers in the U.K. do not pay higher prices or face less choice as a result of this proposed takeover."

While the Competitions and Markets Authority (CMA) has given its provisional blessing to BT's £12.5 billion takeover of EE—a deal which is also supported by Ofcom—doubts about the future of Hutchison's acquisition have grown in recent months.

The failure of the planned merger between TeliaSonera and Telenor's Danish operations in September has prompted concerns the European Union is taking a tougher line to telecoms mergers, while Ofcom CEO Sharon White has said mobile prices could rise if O2 and Three merge. The CMA has already asked the EC for permission to investigate the deal.

"The Commission's decision to open an in-depth investigation was widely expected in the context of the Commission's previous approach to in-country telecoms mergers," a Hutchison spokesperson told TechWeekEurope. "As confirmed in the Commission's press release, it does not prejudge the final outcome of the Commission's review. We believe the transaction will be good for both competition and consumers in the United Kingdom and are confident that the acquisition will be approved by the Commission.

"CK Hutchison has had open and constructive discussions with the Commission throughout the first phase of the merger review process. We will continue to work closely with the Commission to obtain clearance for the acquisition".