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EU competition authority blocks proposed merger between Three and O2

The planned merger between mobile network operators (MNOs) Three and O2 in the UK has been blocked by the EU's competition authority.

The European Commission said the proposed £10.25 billion deal, which would have seen Hutchison Whampoa, the Hong Kong-based owner of Three, purchase O2 UK from Spain's Telefónica, would have "significantly reduced competition" in the UK mobile market.

"The significantly reduced competition in the market would likely have resulted in higher prices for mobile services in the UK and less choice for consumers than without the deal," the Commission said in a statement. "The takeover would also likely have had a negative impact on quality of service for UK consumers by hampering the development of mobile network infrastructure in the UK. Finally, the takeover would have reduced the number of mobile network operators willing to host other mobile operators on their networks."

Hutchison offered a range of remedies to address the competition concerns the Commission had raised about the deal. Among the remedies Hutchison had offered was for it to let one or two mobile virtual network operators share access to the network of the combined Three/O2 business. It also said it would offer Virgin Media the chance to share the network capacity of the merged business too. However, the Commission said the package of remedies on offer were not adequate to address its concerns.

EU competition commissioner Margrethe Vestager said that competition between Three and O2 "has been an important driver of competition in the UK mobile market" and that a merger of the companies would have left a single business in a market leading position and with "much less incentive to compete" with the other two major MNOs in the market, EE and Vodafone.

Vestager said that the Commission had been concerned about the impact on competition if the number of major mobile network operators in the UK reduced from four to three if the merger had gone ahead. The commissioner, however, said that the Commission would consider other proposed telecoms mergers on their own merits and that there was no absolute requirement from a competition law perspective for each EU country to have at least four main MNOs operating.

"There is no 'magic number'," Vestager said.

She said: "In this case, an effective remedy would, for example, have been the creation of a fourth mobile network operator to replace either Three or O2 in one of the network sharing agreements. And there were companies interested in investing on this basis."

"This could have ensured sufficient competitive pressure in the market. It would also have retained the benefits to innovation and investment of the two network sharing agreements. Hutchison was not prepared to offer this or an equally effective remedy. What they proposed did not address all of our concerns," Vestager said.

Vestager also said that there is no "compelling evidence" to support the view that consolidation in the telecoms market is necessary to spur investment in next-generation infrastructure.

Competition law expert Angelique Bret of Pinsent Masons, the law firm behind Out-Law.com, said: "It is rare for the Commission to block proposed merger deals and, at an early stage in the process, it certainly seemed possible that Telefónica sale of O2 to Hutchison could be cleared, albeit on the basis of certain agreed commitments. The Commission previously allowed the merger between Three and O2 in Ireland, which also resulted in the number of MNOs falling from four to three in that market, on condition that Hutchison allowed two more mobile virtual network operators to take out licences to use the network of the merged business. However, it was not possible in the end for a similar arrangement to be agreed, at least within the Commission’s timetable, to remedy potential competition concerns in the UK market."

"What is clear is that the lobbying of the UK's Competition and Markets Authority and telecoms regulator Ofcom against the merger would not have helped the case presented by Hutchison for the deal to be cleared by the Commission," she said.

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