Britain’s competition regulator has called on the European commission to block the owner of Three’s £10.25bn acquisition of O2, or force the combined mobile phone operator to break itself up to protect consumers.
Hutchison Whampoa, the Hong Kong conglomerate that owns Three, agreed in March 2015 to buy O2 from Telefónica of Spain. The deal would create Britain’s biggest mobile phone company and reduce the number of UK network owners from four to three: Hutchison, BT and Vodafone.
In October, the UK’s Competition and Markets Authority asked the commission to refer the acquisition to it but in December the commission turned down the request, saying it was better qualified to apply European rules.
The CMA had argued that fewer mobile operators would lead to higher prices or worse service for British consumers. The commission acknowledged this was possible but said it would impose measures to protect consumers. The CMA has seen the proposals but they have not been made public.
Alex Chisholm, the CMA’s chief executive, has written to the commissioner, Margrethe Vestager, saying the commission’s proposed actions are inadequate. The letter was partly triggered by Vestager saying last week that the decision was due soon, although the deadline is not until 19 May.
Chisholm said: “It is clear that the remedies offered fall well short of what would be required to meet the relevant legal standard, as detailed in our case submissions. The proposed remedies are materially deficient as they will not lead to the creation of a fourth mobile network operator (MNO) capable of competing effectively and in the long-term with the remaining three MNOs such that it would stem the loss of competition caused by the merger.”
He said the combined company should be forced to sell either Three or O2 to an approved buyer or the deal, which would transform Hutchison from the smallest operator, should be scrapped. Hutchison has offered to freeze prices for five years, invest £5bn to improve coverage and reliability and share some of the merged network with rival operators such as Sky, Virgin and Tesco.
Hutchison said the CMA’s letter had no legitimacy in the decision-making process and that its deals to give access to rival operators would open up competition. The proposed forced sale of Three or O2 is a “red herring” because there is no buyer and it would undermine the reason for the takeover, Hutchison said.
“It is no surprise that CMA opposes the merger. It always has,” Hutchison said. “It is an entirely one-sided argument designed to support a preordained outcome.”
A spokeswoman for Vestager said the commission had received the letter and that its investigation was continuing.
Chisholm’s letter reinforces the UK authorities’ unhappiness about the takeover, which would give Hutchison, owned by Hong Kong’s richest man, Li Ka-shing, about 40% of UK mobile phone users with more than 30 million customers.
Sharon White, the chief executive of the communications regulator Ofcom, wrote to the commission earlier this year arguing the deal could mean higher prices, reduced competition between network providers and the big operators having too much power over independent retailers.
The commission’s deadline for ruling on the takeover is a month before the 23 June referendum on Britain’s EU membership, drawing the tussle between Britain’s competition watchdog and Vestager’s department into the debate over the UK’s place in Europe.
Matthew Elliott, chief executive of the Vote Leave campaign, said: “Decisions about how we regulate UK businesses should be taken by UK authorities accountable to UK consumers and electors. If not there is a danger decisions, or a lack of them, could lead to higher prices for customers and put British jobs at risk.
“It is extraordinary that we are powerless over decisions that that will have a major impact on millions of people’s phone bills.”
Hutchison and Telefónica announced the takeover of O2 after BT unveiled its £12.5bn acquisition of EE to return to the mobile phone market. The CMA allowed the BT/EE deal through without conditions because there was minimal overlap between the businesses. It left operators jostling for position in a complex system of overlapping alliances and rivalries.
Vodafone, which shares the Beacon network with O2, said Hutchison buying its partner would be harmful because the UK needs at least three credible network operators for effective competition.
“Vodafone UK relies on the Beacon network that we share with O2 to roll out our 4G network. That roll-out is accelerating and both Vodafone and O2 have clear incentives to develop the network. You can’t leave the smallest operator on its own or with an uncommitted partner, especially in a three-player market.”
Vodafone said Hutchison was running out of time to negotiate a deal with the commission and that it believed Vestager would have to block the acquisition.
Figures for 2014, the most recent available, showed EE had 29% of UK mobile phone contracts, followed by Telefónica with 26% and Vodafone with 19%. Three had 10% of the market followed by Virgin Media with 4% and the remaining 12% shared between smaller companies.
- This article was amended on 11 April to correct the date of the European commission deadline, which was extended until 19 May.
