Report: O2 and Three set to face tough EC conditions for UK merger

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The European Commission (EC) is this week expected to impose tough conditions on the proposed merger of Three UK with O2 UK, in what could be a major hurdle to reaching a deal.

According to a report in the Telegraph, the EC will outline the concessions in preliminary findings due this week. For example, Three UK could be told to sell off some of its network capacity before buying O2. The final decision on the merger is expected in March.

The latest reports on the plan by CK Hutchison to buy Telefonica's O2 UK unit come just days after BT clinched its deal to buy EE. That deal was subject to regulatory scrutiny by the UK Competition and Markets Authority (CMA), but the EC has retained control of the Three/O2 project after refusing a CMA request to let it investigate the matter.

Certainly, such a tough approach chimes with the EC's hardening line on mergers that reduce the number of mobile operators within a single market from four to three. A similar plan in Denmark fell apart after Telenor and TeliaSonera were told to sell off 40 per cent of their network infrastructure.

Ofcom CEO Sharon White has already voiced her concerns over the competitive impact of the proposed Three/O2 merger and reportedly met with the EC's competition commissioner Margrethe Vestager last week to discuss the matter. White is mostly concerned that the deal could result in higher prices for consumers.

CK Hutchison has maintained a bullish stance throughout the process, and is unlikely to change its publically aired view that the transaction will succeed.

Analysts from Jefferies International said earlier in January that CK Hutchison used a London investor meeting to advocate strongly its view that its proposed mergers in the UK and Italy would repair weak mobile operators and should therefore be considered pro-competition.

"It signalled a willingness to address regulatory concerns, suggesting that last year's failed Danish process was partly attributable to the approach that the merging entities took on this," the analysts noted.

Jefferies added that Hutchison also argued that the impact of the Orange Austria merger with Three Austria has been "incorrectly reported" and had in fact enabled the deployment of a high-quality LTE Advanced network.

For more:
- see this Telegraph article

Related articles:
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Ofcom CEO warns of higher prices if Three UK/O2 UK merger is cleared
European Commission takes a tough line on MNO consolidation- Year in Review
Ofcom delays spectrum auction following O2/Three legal threat
CK Hutchison bullish on O2 UK merger clearance, as EC's Vestager investigates