Hutch offers up 30% of UK network, as regulators sharpen knives over pricing

CK Hutchison has reportedly offered to award about 30 per cent of its network capacity in the UK to rivals in order to secure European Union approval for its proposed acquisition of O2 UK.

The Financial Times said the Hong Kong-based company, which has been involved in intensive negotiations with the European Commission (EC) over the past week, has suggested a number of concessions to help alleviate concerns that its plan to merge O2 with Three UK would harm competition.

The paper, which quoted no sources, added that Hutchison has also proposed Sky as the potential beneficiary of such a deal, enabling the UK-based pay TV and broadband provider to seal a long-term capacity arrangement. It further reported that the Hong Kong-based company would be prepared to sell its 50 per cent stake in Tesco Mobile to the UK supermarket group.

However, the EC is understood to be demanding the creation of a fourth, fully separate network -- a position favoured by Ofcom.

Ofcom has been fairly vocal in its opposition to a deal that would reduce the number of mobile network operators from four to three. The CEO of the regulator, Sharon White, has already said that the merger threatens to drive up mobile prices for consumers, and has asked the EC to block the proposed deal.

Now, Ofcom has published a new cross-country report to highlight the benefits that a disruptive mobile operator -- such as Three UK or Free Mobile in France -- has on prices within a market, and how such companies would not have the same incentive to be disruptive if they had a larger market share following a merger.

Based on its analysis that prices are between 17.2 per cent and 20.5 per cent lower on average in countries where there are four or more mobile operators and where a disruptive firm is in the market, Ofcom said the implication is that removing a disruptive player from a four-player market as proposed by the O2-Three UK deal could increase prices by the same amount.

A separate report from Austrian regulator RTR will only fuel concerns over price increases following mobile mergers.

In an analysis of the impact of the 2013 merger between Three Austria and Orange Austria, RTR said it "can be concluded that the merger had a significantly increasing effect on retail prices in the Austrian mobile communications market in the years 2013 and 2014, i.e. before the merger remedies (MNVO entry) became effective."

Based on its findings, RTR suggests that prices for smartphone users increased by 50-90 per cent in this period compared to a control group of 10 European countries where no merger took place, while prices for "traditional users" increased by 22-31 per cent.

For more:
- see this Ofcom report
- see this RTR report
- see this Financial Times article (sub. req.)

Related articles:
Report: Tesco plans to take full control of MVNO if Hutchison buys O2 UK
Report: CK Hutchison to meet EC over UK deal on Mar. 7
CK Hutchison seeks to calm fears over post-merger network sharing deals
Mallinson: O2, Three UK merger could produce a dynamic marketplace
Virgin Media CEO lends support to O2/Three UK deal

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