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May 11, 2016updated 05 Sep 2016 11:46am

EU blocks Three-O2 merger as Liberty Global eyes O2 take-over

News: The European Commission found that proposed remedies did not address its concerns over competition and innovation.

By Alexander Sword

The European Commission has blocked Three owner Hutchinson Whampoa’s purchase of the Telefonica-owned network O2.

The two networks will not merge after the Commission decided that UK mobile customers would have less choice and pay higher prices as a result of the take-over.

It also said that the deal would have harmed innovation in the mobile sector.

Furthemore, the Commission argued that the deal would result in one less player able to host MVNOs, further reducing competition.

Competition Commissioner Margrethe Vestager tweeted that the move had been undertaken "to serve UK consumers – affordable prices and innovation."

The decision had been expected for a while; a consolidation in the Austrian market in 2013 hardened the mood in Brussels when mergers after prices were found to rise there following the deal.

Although the decision was made by the European Commission, Ofcom, the telecoms regulator, and the Competition and Markets Authority in the UK had strongly opposed the deal.

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Hutchinson Whampoa had proposed a number of remedies, with the Commission finding that these failed to address its concerns.

It also found that the efficiency benefits generated by the merger were not enough to outweigh its negative impacts.

In a statement, Vestager said: "We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality. The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses."

She said that allowing Hutchison to take over O2 with their proposed terms would have been "bad for UK consumers and bad for the UK mobile sector."

"We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal.

"It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this."

Kester Mann, Principal Analyst at CCS Insight said that the collapse of the deal left both operators in a "precarious position with uncertain futures in the UK."

Alternative buyers are now considering buying O2, with Liberty Global’s CEO Mike Fries indicating on an earnings call that the company was looking at the possibility.

Mann said that the most likely option was a private equity buy.

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