UK asks to take over Three/O2 review, as Vestager cautions against 4 becoming 3

The UK's Competition and Markets Authority (CMA) asked the European Commission to let it investigate CK Hutchison's proposed acquisition of Telefónica's O2 UK unit because it believes the deal will have the greatest impact on competition in the UK.

The request by the UK antitrust regulator could signal a tussle between the CMA and the European Union's executive body at a time when the Commission is also signalling it will more thoroughly scrutinise the competitive impact of proposed mergers that reduce the number of mobile operators within a national market from four to three.

In its statement, the CMA said its initial view is that the transaction "threatens to affect significantly competition in the UK retail mobile and wholesale mobile markets." It added that since it was responsible for investigating the proposed merger between BT and EE, it would be "more efficient" to also examine the merger between Three UK and O2 UK.

The European Commission now has until Oct. 30 to make a decision on the CMA's request. Whether it will be in favour of a referral remains to be seen, but precedence suggests not. For example, Germany's Federal Cartel Office had argued in early 2014 it was best placed to rule on the competitive impact of Telefónica Deutschland's acquisition of domestic rival E-Plus. However, the Commission said it was in a better position to investigate the proposed deal and declined to relinquish control.

That deal has now been approved, and Telefónica is in the process of integrating the O2 Germany and E-Plus networks. However, since the E-Plus deal was approved, thereby reducing the number of German mobile operators from four to three, there has been a changing of the guard at the European Commission.

Now, new EU Competition Commissioner Margrethe Vestager appears to be taking a tougher stance over proposed telecoms mergers and acquisitions in Europe. Indeed, only last week Vestager gave the clearest signals yet that she would impose tougher conditions than her predecessor on future deals in the European telecoms market.

Speaking at a conference of antitrust experts in New York, Vestager confirmed, for example, that the Commission had been "on the road to prohibit" the planned merger of TeliaSonera and Telenor's mobile units in Denmark before the two operators decided to abandon the transaction.

"If the deal had materialised, there would have been two large mobile operators -- the merged entity and the former national monopolist, TDC. Between them, they would have had around 80 per cent of the market. The third, smaller player would have been Hi3G," she noted.

Vestager said the outcome of the Danish merger has "perhaps inevitably" led to a debate as to what lessons can be drawn from it for future mergers.

"The first and most obvious point is that there is no magic number…on the number of mobile network operators in a given country. The Commission has not laid down a general rule saying that three or four network operators are necessary," she stressed.

However, she did note that "research seems to suggest that a reduction of the number of players from four to three in a national mobile market in the EU can lead to higher prices for consumers. But not that it leads to more investment per subscriber. In other words, it does not seem to lead to significantly higher overall investment by carriers."

Overall, Vestager stressed that whatever decisions are made, a crucial task is to ensure that competition is maintained.

"Above all, I am sure that debates on how to make telecoms markets work well for consumers will keep us busy both in the EU and U.S. for quite some time," she concluded.

For more:
- see the CMA announcement
- read the full transcript of Margrethe Vestager's speech in New York

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