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Hutchison's plans to acquire O2 in the UK subject to EU competition probe

Hutchison Whampoa's plans to buy O2 in the UK from telecoms giant Telefónica are to be scrutinised by the European Commission in "an in-depth" competition investigation.

The Commission said it is concerned the proposed £10.25 billion transaction "could lead to higher prices, less choice and reduced innovation for customers of mobile telecommunications services in the UK".

Hutchison, the Hong Kong-based owner of UK telecoms operator Three, announced in March that it had finalised the details of the purchase of O2 UK from Spain's Telefónica. The deal would make Hutchison Whampoa the largest mobile operator in the UK, with almost 33 million customers.

The European Commission's investigation into the deal comes after Hutchison, via its obligations to do so under EU law, notified it of the planned merger of the companies in September. The Commission is responsible for assessing the potential impact of major M&A deals on competition in EU markets.

The Commission said it decided to open a full scale investigation of Hutchison's takeover of O2 after an initial review of the market raised some concerns. One of the main concerns the Commission identified with the deal was what it said would be the removal of "an important competitive force" in the UK retail mobile telecoms market.

O2 and Three are currently rivals in the market and the Commission said it believes consolidation of the companies would diminish competitive pressures in the market and "lead to higher prices and less investment in mobile telecommunications networks".

The Commission also raised concern about the impact fewer mobile network operators (MNOs) in the UK market would have on mobile virtual network operators (MVNOs), which are companies that use rivals' telecoms infrastructure to deliver services to customers.

"Prospective and existing MVNOs would have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms," the Commission said.

Fewer competitors in the market also poses a risk that the remaining businesses would collude with one another, it said.

"The reduction in the number of competitors following the merger risks leading to a weakening of competitive pressure and increased likelihood that MNOs will coordinate their competitive behaviour and increase prices on a sustainable basis on the retail and wholesale markets," it said.

In opening its investigation the Commission has rejected an application by the UK's Competition and Markets Authority (CMA) to be handed the task of reviewing the merger. The CMA asked the Commission to devolve responsibility for assessing the proposed deal in October, but the Commission has decided to conduct its own probe into the transaction. The Commission has until 16 March 2016 to make a decision on the case.

The EU's competition commissioner Margrethe Vestager said: "Mobile telecom services are increasingly important to consumers. Both to keep in touch with family and friends and to access online services. With this investigation we want to ensure that consumers in the UK do not pay higher prices or face less choice as a result of this proposed takeover."

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