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Competition and Markets Authority urges EC to kill Three's O2 merger

The Competition and Markets Authority (CMA) urges the European Commission (EC) to rule against CK Hutchison's proposed acquisition of mobile network O2

The chief executive of the Competition and Markets Authority (CMA), Alex Chisholm, has written to the European Commission (EC) to urge it to halt the merger of UK mobile network operators (MNOs) O2 and Three.

In the letter, addressed to commissioner Margrethe Vestager, Chisholm said there had been productive and meaningful discussions over the proposed merger between all parties concerned – but said the proposed concessions to allow it to go ahead fell short of relevant legal standards.

Last week CK Hutchison – Three’s Hong Kong-based parent organisation – made a last-ditch attempt to sell the acquisition by offering to sell 20% of its combined network capacity to Sky to set up a new mobile virtual network operator (MVNO), and 10% to Virgin Media, as well as selling off a 50% stake that O2 owns in Tesco Mobile.

Chisholm set out the CMA’s position, that the merger would give rise to a “significant impediment to effective competition in retail and wholesale mobile telecoms markets” and backed the view of Ofcom CEO Sharon White, who spoke out against the deal at the beginning of February 2016.

“The proposed remedies are materially deficient as they will not lead to the creation of a fourth 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,” wrote Chisholm.

“In addition they fail to address concerns arising from the presence of the merged entity in both the network sharing arrangements, including the greater risk of coordination that this brings.”

Chisholm argued that “the only appropriate remedy” that would prove satisfactory would be the divestment of either the Three or O2 mobile network businesses, in entirety, or allowing for limited carve-outs from the divested business.

Read more about the Three/O2 merger

It would need to include the mobile network infrastructure and a sufficient tranche of spectrum to ensure that a new and viable MNO could be created in the UK.

“Absent such structural remedies, the only option available to the commission is prohibition,” wrote Chisholm.

Danish precedent

The EC’s Margrethe Vestager, formerly deputy prime minister of Denmark, will ultimately pass judgment on the deal on behalf of Brussels.

Vestager has taken a strong line on competition among telecoms operators in the European Union (EU) and has stood firm in her argument that four active MNOs per country market is a guarantor of healthy competition.

“Research seems to suggest that a reduction of the number of players from four to three in a national mobile market in the EU can lead to higher prices for consumers,” said Vestager, speaking to an antitrust law conference in the US in October 2015, “but not that it leads to more investment per subscriber.”

Late last year she blocked the proposed merger of Telenor and TeliaSonera in Denmark, saying that the competition concerns were so significant, they required an equally significant remedy – meaning the creation of a fourth MNO.

Telenor and TeliaSonera had offered to sweeten the deal by selling off up to 40% of their networks, had the merger been waved through.

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