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CMA chief warns commission not to approve O2 - Three deal

With exactly one week to go before the EC rules on the O2 -Three merger, the CMA asks that a fourth operator be carved out of any such deal

UK’s Competition and Markets Authority has called on the European Commission to block the Three - O2 merger or force the combined companies to create a fourth operator.

Hutchison Whampoa, the Hong Kong powerhouse behind Three,  struck a deal to buy O2 from Telefónica early last year. Unlike the BT – EE deal, this arrangement would reduce the number of UK networks from four to three. Since the deal was announced, the CMA has argued that a consolidation of networks would not bet in the best interests of the consumer.

To alleviate concerns, Hutchison has offered to freeze its prices for five years, sell some its network spectrum to rivals and invest £5bn into the UK’s cellular network infrastructure.

With a week left to go until the EC rules on the acquisition, Alex Chisholm, the CMA’s chief executive, has written an open letter to the commissioner, Margrethe Vestager, stating that the proposed safeguards fall short of the mark.

“It is clear that the remedies offered fall well short of what would be required to meet the relevant legal standard, as detailed in our case submissions,” Chisholm said. “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.”

Chisholm argued that if the deal were to be approved, Hutchison should be forced to sell enough of the merged resources to create a fourth independent operator.

“The divestment would need to include the mobile network infrastructure and sufficient spectrum to ensure a commercially viable fourth MNO in the UK,” he said, adding: “Absent such structural remedies, the only option available to the Commission is prohibition.”

An O2 – Three merger would create the UK’s largest operator with some 40% of all mobile subscriptions and more than 30 million customers.

The CMA is not the only watchdog to pour scorn on proposed deal. Writing in the Financial Times in February, Sharon White, the chief executive of Ofcom, said that the regulator was concerned about the impact on competition.

“Many of our concerns relate to competition between operators who own the networks on which mobile phones rely. Only these four companies can make your mobile signal faster, more reliable and widely available,” she wrote.

“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 pries and cutting-edge products for years to come. For that we need strong competition: the basis of protection and the incentive to progress.”

Hutchinson argues that the EE – BT deal, which has already been approved, will squeeze both O2 and Three out of the market. EE already enjoys a 34% market-share and combined with BT, the largest fixed-line broadband provider, the merger will create the most powerful quad-play provider in the country.

The commission is due to make a decision on the O2-Three deal on 18 April.

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