UK regulator calls on EC to maintain 4 operators or block Three/O2 merger

The UK Competition and Markets Authority (CMA) has become the latest organisation to wade into the increasingly controversial debate over whether CK Hutchison should be allowed to buy O2 UK and merge it with Three UK.

In an open letter to European Union (EU) competition commissioner Margrethe Vestager, who is currently investigating the proposed merger, the regulator echoed previous comments by Ofcom CEO Sharon White that a reduction in the number of mobile network operators (MNOs) from four to three would have a harmful effect on competition in the UK mobile services market.

Alex Chisholm, CEO of the CMA, said in the letter that the European Commission should block the merger if it cannot be guaranteed that a fourth MNO would be maintained through the sale of the Three or O2 mobile network businesses "in entirety, or possibly allowing for limited 'carve-outs' from the divested business."

Chisholm added that a divestment "would need to include the mobile network infrastructure and sufficient spectrum to ensure a commercially viable fourth MNO in the UK. Absent such structural remedies, the only option available to the commission is prohibition."

The CMA believes that the remedies offered so far "fall well short of what would be required to meet the relevant legal standard, as detailed in our case submissions."

CK Hutchison is reported to have signed network capacity deals with Sky and Virgin Media to help secure approval of its proposed merger. It has also previously said it is considering the sale of a stake in Three UK to another investor, in a move that could lead to Three and O2 being maintained as separate entities in future.

Ofcom's White has already called on the EC to block the proposed deal, citing concerns that a merger would drive up prices and disrupt existing UK network-sharing arrangements.

The CMA has similar concerns, noting that it believes this merger "would give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the United Kingdom."

Hutchison, which in March last year entered into an agreement with Telefónica to acquire O2 UK for a total of £10.25 billion (€12.7 billion/$14.5 billion), has already agreed to sell about 32.98 per cent of a future combined business of Three UK and O2 UK to five institutional investors for a total of £3.1 billion.

The EC has set a provisional deadline of May 19 for a decision on the proposed merger.

For more:
- see this CMA letter

Related articles:
EC opens in-depth investigation into Hutchison's planned Wind Italy deal
Three UK could stay separate from O2 UK as Hutchison mulls plan B
Hutch offers up 30% of UK network, as regulators sharpen knives over pricing
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

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