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April 12, 2016updated 05 Sep 2016 11:28am

UK competition authority calls on EU to block merger between O2 and Three

News: Remedies suggested by owners of mobile operators said to "fall well short."

By James Nunns

The UK’s competition authority has called for European regulators to block the merger between mobile operator O2 and Three.

A deal between Hutchison Whampoa, the owner of mobile operator Three, and Telefonica’s O2 was agreed in March 2015 for £10.25bn but the UK’s Competition and Markets Authority has requested that the European Commission block or restrict the merger.

The CMA has warned that the merger could cause "long-term damage" for UK consumers as it would leave only three mobile networks, which could significantly reduce competition and lead to higher prices.

The CMA said in a letter to the EU Competition Commissioner: "We believe this merger would give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the U.K."

In response CK Hutchison said that it was disappointed with the move and that there would remain plenty of competition in the UK market.

Ofcom has already voiced concerns about the merger with CEO Sharon White saying: "Competition is the lifeblood of today’s telecoms market, spurring innovation, better coverage and fair prices."

"So we are concerned that the smallest mobile network, Three proposes to become the biggest by acquiring its rival, O2. The combined group would control more than four in 10 mobile connections."

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The problem is that O2 is Britain’s second-largest mobile operator and Three is the fourth-largest, combined it would become the biggest operator in the UK and increase its subscribers to 34 million.

Although Hutchison has said that it would be willing to sell fractional ownership stakes in its UK mobile network to its competitors, this does not appear to have eased the CMA’s concerns.

In response to the efforts to alleviate concerns, the CMA said that the remedies, "fall well short" and that regulators should instead force most of O2 or Three’s mobile network to be sold off after the deal.

Alex Chisholm, CEO of the CMA, said: "It is clear that the remedies offered fall well short of what would be required to meet the relevant legal standard, as detailed in our case submissions. The proposed remedies are materially deficient as they will not lead to the creation of a fourth mobile network operator (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."

Hutchison has offered to freeze prices for five years and to invest £5bn to improve coverage and reliability.

The European Commission has until the 19th of May to make a decision on the proposed merger.


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