European Commission blocks proposed acquisition of O2 by Hutchison
Written by: Laurence Doe | Published:

The European Commission has blocked the proposed acquisition of Telefonica Europe plc (O2 UK) by CK Hutchison Holdings Ltd's (CKHH) under the EU Merger Regulation.

Today's decision follows an in-depth investigation by the Commission of the deal, which would have combined the UK's second and fourth largest mobile network operators (MNO) Telefónica UK's "O2" and Hutchison 3G UK's "Three" to create the largest MNO in the country. The Commission stated that the remedies proposed by Hutchison "failed to adequately address the serious concerns raised by the takeover" and outlined the removal of a competitor to leave only Vodafone and BT's Everything Everywhere (EE) to challenge the merged entity as a deciding factor. It added that this reduced competition would have also been likely to increase the cost of mobile services in the UK and presented less choice for consumers.

Another factor raised in the Commission's findings was that the takeover would have been likely to impact on quality of service for UK consumers by hampering the development of mobile network infrastructure in the UK. It concluded that the takeover would have reduced the number of mobile network operators willing to host other mobile operators on their networks.

Commissioner Margrethe Vestager, in charge of competition policy, said: "We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality. The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses.

"Allowing Hutchison to takeover O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector. We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal. It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this."

One of the organisations that submitted its views to the European Commission in opposition to the acquisition was the Federation of Communication Services (FCS), which represents the interests of companies delivering professional communications solutions to business and public sector customers in the UK. At the time it stated that it was "deeply concerned at the fundamental lack of original thinking" in the process, warning that the Commission risked "unintentionally aligning itself with this historical status quo by asking questions purely against points of reference determined by the MNOs".

It also stated that Hutchison's proposed remedies "perpetuated the current presumption that consumers in the mobile market can only efficiently be served by very large market entities".

Speaking after the announcement of the Commission's block, Chris Pateman, CEO of FCS said: "There is every reason to believe that choice would have been reduced. Therefore it is likely that prices would have gone up even though Hutchison gave a commitment not to raise prices and to cut the costs through efficiency gains. Where you've got three providers it is not likely that prices will go down.

"The only way you will get genuine innovation in the mobile sector is to encourage new competitors into the marketplace. What you've got at the moment is a complex monopoly of four organisations who are vertically integrated, they own all the mast sites and there is no universal roaming in the UK, so in some parts of the country they have got an SMP [significant market power] situation where they are the only operators who have a mast site that will supply that area.

"The easiest way to deal with this is to look at the fundamentals of mobile telephony and re-visit it from first principals. The reason it's like this is because when we set up the mobile phone networks the regulatory environment was set up so that people would come in, make major investments to build the mast sites and the be able to cash-cow that investment.

"They've had the best part of 20 years out of that investment now. You can't carry on doing it forever. We need to change. We need to open up wholesale access. We need to allow dealers and resellers to have the same kind of access to the mobile networks that they enjoy to BT's Openreach network and that will drive innovation," concluded Pateman.

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