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Competition watchdog calls for block on Three/O2 merger

Published 11/04/2016

The Competition and Markets Authority said the merger of O2 and Three would not be in the interests of consumers
The Competition and Markets Authority said the merger of O2 and Three would not be in the interests of consumers

Britain's competition watchdog has called on European regulators to effectively block the merger of mobile phone giants Three and O2 amid fears it will cause "long-term damage" to UK consumers.

The Competition and Markets Authority (CMA) has written to the European Commission (EU) to say the £10.3 billion merger would be a "significant impediment to effective competition" in the UK mobile phone market.

European regulators have been studying the deal for several months since Three owner CK Hutchison of Hong Kong entered into exclusive talks to buy O2 from Spain's Telefonica in January 2015.

The deadline for the EC to make its ruling on the deal is May 19, although regulators close to the process say a decision may come before that.

The CMA said the merger would cut the country's four major mobile phone players from four to three, which would not be in the interests of consumer competition.

However, CK Hutchison said it was "very disappointed" about the CMA's letter.

It added: " It is no surprise that CMA opposes the merger. It always has, and so has Ofcom. But it is for the Commission to assess any competition concerns, on the basis of the facts and proposed remedies."

The four major networks in the UK are Vodafone, Three, 02 and EE.

CMA chief executive Alex Chisholm said in the letter that the appropriate action in this case "is the divestment - to an appropriate buyer approved by the Commission - of either the Three or O2 mobile network businesses, in entirety, or possibly allowing for limited 'carve-outs' from the divested business".

This would in effect mean that CK Hutchison would have to sell all, or most, of one of the two networks, negating the point of the merger to create a larger business.

O2 has around 28.5% of the UK market, but a merger with Three's share of just over 8% would see it climb to become the biggest operator in the UK.

The CMA cleared the £12.5 billion sale of EE to telecoms giant BT in January, creating a combination that will have around 35 million mobile, broadband, and TV customers.

The deal saw BT re-enter the mobile market, but the CMA said that deal was not likely to harm competition in the industry.

The executive director of consumer watchdog Which? Richard Lloyd said: "The CMA is right that this merger, if it is allowed to go ahead, would seriously reduce choice and competition for UK customers in the mobile market.

"Which? has also written to the European Commission to set out our concerns."

However, telecoms and TV firm Virgin Media argued that three bigger firms had a better chance of competing with EE, now that it has been bought by BT.

Virgin Media claims that the BT/EE merger now controls almost half of the UK spectrum available to mobile phone firms in this country.

Virgin Media chief executive Tom Mockridge said: "Less than three months ago the CMA approved the merger of BT/EE, without remedies, despite concerns that this concentrated too much valuable spectrum in the hands of one provider.

"This is the very reason it is now difficult to create a new, fourth mobile network operator.

"A combined O2/Three would provide a counter balance to the strength of BT/EE, offering an alternative source of capacity to other providers who will drive competition in their own right."

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