Hutchison To Tell EU Three-O2 Merger Is Only Way To Compete With BT, Vodafone

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Three owner to argue Three and O2 would be ill-equipped to compete with a BT-owned EE and Vodafone if merger doesn’t go ahead

Hutchison Whampoa will tell the European Commission (EC) that if approval for the proposed merger of Three and O2 does not go ahead, both companies will be unable to compete with Vodafone and a BT-owned EE, according to a report in The Telegraph.

The proposed £10.25 billion takeover of O2 would create the UK’s largest mobile operator by customer number with 33 million customers, and Hutchison is prepared to argue the deal would create a strong rival for the other two operators rather than reduce competition.

Central to its argument is that Three and O2’s combined spectrum holdings amount to just 27.4 percent of the available airwaves in the UK – roughly the same as Vodafone but less than EE’s 45 percent.

O2 Three merger

Three Sing It Kitty“We will have the same spectrum combined as Vodafone has today and less than EE has even before it combines with BT,” O2 CEO Ronan Dunne told the newspaper, adding the rapid departures of Telefonica, owner of O2, and Deutsche Telekom and Orange, EE’s parent companies, suggested something was wrong with the UK mobile market.

“If you were the regulator or minister responsible for telecoms in the UK, you would be surprised that in one of the most open economies in the world that has strong foreign direct investment, you would be surprised that three of the largest telecoms companies in the world are selling. It does imply there is something not quite perfect in the model.”

The EC might have concerns that any merger could impact the market and harm consumers. Three, currently the UK’s smallest operator, has a history of disrupting the market with low prices, roaming offers and 4G at no extra cost. Should it become the largest operator, the need for such aggressive tactics would be less obvious.

However the Commission has given its blessing to mergers in other countries in recent times. Indeed, Hutchison is in the process of combining Three and O2 in Ireland and it has been suggested the EC could focus on spectrum holdings and Mobile Virtual Network Operator (MVNO) access.

Regulator Ofcom says it is currently happy with the quality of service and competition in the mobile market, but says it will take a keen eye on the pending mergers and trend towards convergence taking place in the sector.

“Ofcom doesn’t have direct role [in regulating the transactions] but we work closely with Competition and Market Authority (CMA) and the European Commission (EC),” Brian Potterill, competition policy director at Ofcom told a Westminster eForum last month.

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