Telefónica and Hutchison Whampoa Group face a "fraught" battle with competition authorities as they seek approval to merge their UK businesses, a leading Ovum analyst warned.
Matthew Howett, Ovum practice leader for regulation, said the deal faces several uncertainties as it works its way through European competition regulators, including whether the deal should be considered at European or UK level.
The Spanish operator on Tuesday agreed to sell its O2 UK business to Hutchison Whampoa for £10.25 billion (€13.9 billion/$15.2 billion), comprising an initial payment of £9.25 billion and an additional £1 billion to be paid once the combined business achieves a pre-determined cash flow.
Hutchison plans to merge O2 UK with its Three UK operation in a deal that will cut the number of mobile network operators in the UK from four to three.
The deal was announced a matter of weeks after BT agreed to acquire EE from its parents Deutsche Telekom and Orange for £12.5 billion. That deal is tipped to be considered by UK competition authorities because it would not cut the number of mobile network operators in the country.
Howett said that in both cases it is "becoming clearer what concessions might be offered" to gain approvals, speculating that those remedies "will almost certainly focus on mobile backhaul, spectrum holdings, and the current network sharing agreements between Vodafone and O2, and Three and EE."
While the Commission cleared similar mergers in Germany and Ireland in 2014, Howett noted those decisions came from the "previous Commission" and were passed on condition the remaining operators free up spectrum to allow new MVNOs to enter the market, and so maintain competition despite the reduction in full network operators.
However, the "UK already has a vibrant MVNO scene and so that is less relevant" Howett noted, adding that competition authorities are likely to "want to preserve the 'challenger' behaviour in the market."
Declan Lonergan, research VP at 451 Research, predicted it could be "well into next year before we know for sure whether the deal will get the green light," given that the European Commission "is likely to take a very close look at the proposed acquisition." However, Lonergan noted that the EC is likely to wave the deal through "eventually" based on concessions Three UK is likely to offer.
BT, meanwhile, pressed on with plans to launch its own MVNO services in the UK, confirming reports from Monday that it was ready to re-enter the consumer mobile market under BT Mobile.
The operator on Wednesday launched three SIM-only tariffs bundling LTE (4G) data, voice minutes and SMS. The cheapest rate of £5 per month buys existing BT Broadband customers 500 MB of data, unlimited SMS and 200 call minutes. The same package costs non-BT customers £10 per month.
Existing broadband subscribers will also be offered a bundle comprising 2GB of data, unlimited SMS and 500 calling minutes for £12 per month (£17 for non customers), or a package of 20GB data and unlimited SMS and calls for £20 per month (£25).
BT is also selling four new LTE-compatible mobile devices with prices starting from £99.
John Petter, chief executive of BT Consumer, said the operator is offering the "UK's best value 4G data deal" on the country's "biggest network."
Steven Hartley, Ovum practice leader for service provider and markets, said BT's re-entry into consumer mobile won't change the UK market in the near-term. "We see this more as a statement of strategic intent rather than a major push into mobile," Hartley noted, adding that BT has taken the "first step on a strategic path that will become much more assured upon the completion of its proposed purchase of EE."
While Hartley doesn't expect an immediate impact from BT's consumer service, he noted that the "UK is moving to a quad-play market and rivals will need to respond."
For more:
- see Telefónica's O2 UK sale announcement [PDF]
- view this Ovum comment on O2 and Three UK
- read 451 Research's view
- see this BT announcement
- view this Ovum BT MVNO opinion
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