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Three and O2 risk slow death if merger not approved

Reports suggest Hutchison Whampoa will argue it does not hold enough mobile spectrum to compete effectively against the BT-EE combination

Hutchison Whampoa will tell the Competition and Markets Authority (CMA) that it must be allowed to merge the Three mobile network with O2 if it is to remain a viable competitor in the UK market.

According to the Sunday Telegraph, the Hong Kong-based communications conglomerate is expected to argue that if it is not allowed to bring together the Three and O2 mobile networks in the UK, it risks being squeezed out by BT.

The operator’s case will hinge on the fact that the BT-EE combination will control around 45% of the UK’s mobile radio spectrum, whereas Three currently owns just over 12% and O2 owns just over 15%.

The UK’s fourth operator, Vodafone, controls 28% of the country’s spectrum, meaning the combined Three-O2 will be level-pegging with it. However, it would still be substantially behind BT-EE, which will benefit from a tranche of spectrum awarded to BT during the last spectrum auction in 2013.

Imperfect model

O2 chief executive Ronan Dunne told the Sunday Telegraph that the government should be concerned O2’s parent, Telefónica, and EE’s co-parents, Deutsche Telekom and Orange, were all trying to get out of the UK market at the same time.

Dunne suggested the rush for the exit implied that “there is something not quite perfect in the model”.

The CMA is already looking into the Three-O2 merger as part of its due diligence on the £12.5bn BT-EE deal and may decide to begin a more formal probe in the near future.

“O2 and H3G [Three] are major players in the UK telecoms market, [so] we will consider the potential implications of the proposed merger and the European Commission’s investigation for the competitive conditions in the UK,” said the CMA.

BT has consistently argued that, even though it will hold almost half of the currently available mobile spectrum, its market share would remain under the threshold at which regulatory action would need to be taken.

However, BT is facing down a growing clamour from other parts of the industry that some of conditions are attached to the deal, which could include it being forced to structurally separate its Openreach infrastructure unit.

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