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April 7, 2016updated 05 Sep 2016 11:30am

Sky and Virgin Media could get own mobile networks if European Commission approves Three-O2 deal

News: Brussels is taking a harder line on mergers.

By Alexander Sword

A final set of undertakings proposed by CK Hutchinson as the European Commission prepares to rule on its purchase of O2 underlines the increasing concern at the company over Brussels’s hostility to mergers.

Hutchinson Whampoa, the owner of the Three brand in the UK, which plans to purchase Telefonica’s O2, is proposing that Sky take about 20 percent of the network’s capacity and Virgin Media about ten percent.

The proposals will also include selling the share in Tesco Mobile owned by O2 and giving Tesco capacity on the network, according to the report in the Financial Times.

These offers will be welcomed by Sky, which is set to launch its own mobile service Sky Mobile as an MVNO this year.
These latest pledges build on previous promises from Hutchinson.

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.

Fok also promised that the company would invest £5 billion in UK businesses over five years, which he claims is 20 percent more than would have been invested if the companies were separate.

In March, Hutchinson suggested it might keep O2 as a separate network following the merger, although it said that this was not intended to appease regulators.

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UK regulator Ofcom’s CEO Sharon White claimed that the deal would damage competition in the UK, although neither Ofcom nor the UK’s Competition and Markets Authority have a say over the deal since not enough of the business of the two companies is conducted there.

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."

The mood at the European Commission, which will decide the case, has been markedly anti-merger after a 2013 deal in Austria, where the amount of operators fell from four to three.

Figures from the Vienna Chamber of Labour indicated the cost for average phone and SMS users rose around 29 percent between September 2013 and December 2014, with the cost for mobile data users increasing 78 percent in the same period.

Margrethe Vestager, the European Commission’s Competition Commissioner since 2014, imposed such onerous conditions on a proposed merger of TeliaSonera and Telenor in Denmark that the two parties did not go ahead with it.

The French parallel of the deal, the proposed merger between Orange and Bouygues Telecom fell through earlier this month after the two parties failed to reach an agreement, with Bouygues cited four major points that it had prioritised which had not all been addressed.

The combined entity would have controlled about half of the mobile market; however, the deal would have been decided by French authorities.

The Commission’s deadline for its decision on the Three-O2 deal is 19 May.

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