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Three makes new attempt to ‘sell’ O2 acquisition

Three parent CK Hutchison is understood to have made a number of further concessions to curry favour with European regulators

CK Hutchison, the parent organisation of mobile network operator Three, has offered a number of further concessions in an attempt to ease the passage of its proposed acquisition of O2 past European regulators.

According to the Financial Times, Hutchison offered to sell 20% of its combined network capacity to Sky for use as a new mobile virtual network operator (MVNO), and 10% to Virgin Media, which currently runs an MVNO on competitor BT’s EE network.

It will also share the 50% stake that O2 currently owns in MVNO Tesco Mobile, and will continue its commitment to both existing network joint ventures managed by Three and EE, and O2 and Vodafone, said the newspaper, citing sources close to the negotiations.

The acquisition, worth a total of £10.25bn, would create the largest mobile network in the UK, with 33 million customers, edging out current market leader EE, itself the result of a previous merger.

However, in the light of BT’s acquisition of EE, which closed earlier in 2016, speculation has been rife that Brussels would give the thumbs-down to Hutchison’s proposals.

The organisation’s co-managing director, and Three chairman, Canning Fok, had previously set out a number of pledges to ease fears over the consolidation of the UK market from four MNOs to three.

In an open letter published in February, Fok said the combined Three-O2 network would: freeze prices on voice minutes, texts and data for five years; commit to investing £5bn into the combined business; and offer for sale fractional shared ownership interests in its network capacity to competitors.

Fok said that allowing the acquisition to move ahead would help the business compete effectively against the enlarged BT organisation – which he described as a “leviathan” – and Vodafone, the “old top-of-the-heap competitor”.

“It is the only way we can guarantee that, five years from now, customers will still be getting more and paying less for mobile services,” he said.

Ofcom has also voiced doubts about the deal. Earlier this year, chief executive Sharon White said it would damage both competition and retail markets.

Meanwhile, the collapse of negotiations over the combination of French mobile networks Orange and Bouygues – which would have been worth around £7.5bn and account for 50% of the addressable market across the Channel – has raised doubts over the Three-O2 deal.

“The collapse of a potentially easier-to-accomplish deal in France highlights that nothing is certain in the telecoms sector until the ink is dry,” said NTT client partner Alastair Masson.

“The story of Bouygues and Orange had many similarities with O2 and Three in terms of size, scale, competitive impact and market objectives. For the time being, the French market keeps four mobile operators and competition remains intact. Time will tell if the UK’s mobile market share tie-up can still succeed, or if it too is facing failure.”

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