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April 26, 2016updated 05 Sep 2016 10:48am

Insiders say EU set to block Three-O2 merger over competition concerns

News: European Commission believes that going from four to three operators harms competition and leads to price rises.

By Alexander Sword

The take-over of UK mobile network O2 by the owner of rival Three will reportedly be blocked by the European Commission after proposed remedies have failed to address competition concerns, according to sources speaking to Reuters.

The European Commission is now seeking approval from national competition regulators for the decision to reject the deal, the report says.

This news comes after Three owner Hutchinson Whampoa repeatedly offered remedies to address concessions.

In early April, Hutchinson proposed that Sky take about 20 percent of the network’s capacity and Virgin Media about ten percent.

It also proposed selling the share in Tesco Mobile owned by O2 and giving Tesco capacity on the network, according to the Financial Times.

In a letter to the Financial Times in February, Hutchinson’s Chairman Canning Fok said that a price freeze covering voice, texts and minutes would be in place for five years following the merger.

These proposals aimed to address the Commission’s concerns about seeing the number of operators reduced from four to three.

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A 2013 merger deal in Austria saw the number of operators fell from four to three, with figures from the Vienna Chamber of Labour suggesting that the cost for average phone and SMS users rose around 29 percent between September 2013 and December 2014.

The cost for mobile data users increased 78 percent in the same period.

Commissioner Margrethe Vestager already derailed a proposed merger of TeliaSonera and Telenor in Denmark, imposing conditions that made the deal unviable.

This would be the first time that Vestager had actually blocked a deal, however.

The deal has been opposed by both Ofcom, the telecoms regulator, and the Competition and Markets Authority in the UK.

A March report by Ofcom said that "prices could be between 17.2 percent and 20.5 percent lower on average in countries where there are four or more mobile operators AND a disruptive firm is in the market.

"By implication, this may suggest that removing a disruptive player from a four player market (as is proposed in the H3G/O2 merger in the UK) could increase prices by between 17.2 percent and 20.5 percent on average, all else being equal."

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