Three’s £10.5bn deal to buy O2 has drawn opposition from UK telecoms regulator Ofcom, putting the proposal under threat.
Ofcom chief executive Sharon White (pictured) said in The Financial Times that she has concerns that the deal will affect competition in the market by reducing the number of mobile operators in the UK to just three.
“We are concerned that the smallest mobile network, Three, proposes to become the biggest by acquiring its rival, O2. The combined group would control more than four in 10 mobile connections,” she wrote.
White explained that Ofcom has made its fears known in a submission to the European Commission (EC), which is assessing the deal, outlining three key concerns: higher prices, the threat of network disruption and risks to high-street trading.
On the topic of price rises, White wrote that prices invariably rise in markets where there are only three operators as there is less incentive to use price to woo customers.
“Our findings show that average prices are around 10-20 per cent lower in markets with four operators and a disruptive player than in those with only three established networks," she said.
“Austria’s regulator said that, since the deal there [which created a three-player market], overall mobile prices have climbed 15 percent and by 30 percent for customers who only make calls and send texts.”
On the topic of network disruption, White noted that at present the four operators share infrastructure, split as Three and EE and O2 and Vodafone. The merger would end this arrangement and is likely to cause network problems.
"Any merger would threaten that arrangement," she said.
Finally with regard to the high-street, White said that the move is likely to limit the ability of independent phone retailers to compete, again affecting prices.
“A combined Three/O2 would shift the balance of power between mobile networks and the independent retailers who help constrain the price of mobile handsets and bills,” she said.
White did add that Ofcom’s concerns would be lessened if there was a guarantee that a new fourth operator could emerge, but she acknowledged that this would take a long time to achieve.
“Establishing a new mobile network might be one answer, but this would take time and considerable investment,” she said.
Three hit back at the claims, claiming the deal will improve its offering to the market.
“Three UK’s acquisition of O2 will provide the smallest operator with the scale and financial strength to be able to continue to compete aggressively in the market as a focused, pure-play mobile operator against powerful fixed and media convergent operators," it said in a statement.
"The combined business will significantly enhance the wholesale market, offering access to a best-in-market network and enabling a range of better and stronger offers by a range of other providers for consumers.”
V3 contacted O2 for comment on the article but had received no reply at the time of publication.
Ovum telecoms analyst Matthew Howett told V3 that he was not surprised to see Ofcom come out against the deal, given how hard the watchdog tried to maintain a four-player market.
“Remember the 4G auction and the rules they put in place in terms of the minimum spectrum portfolios. They were entirely designed to ensure that there would be four credible nationwide operators,” he said.
Howett added that the deal’s future depends ultimately on the EC’s investigation. “Ofcom take can some comfort from the fact they have generally spoken out against in-market consolidation, but it’s not certain they will block it,” he said.
The decision to approve the deal could come down to the concessions Three owner Hutchison is prepared to make to get the deal passed, according to Howett.
“From an EC perspective, the most likely to swing it would be a divestment of assets to create a fourth mobile operator,” he said.
“White hints that the creation of a fourth operator would go someway to alleviate her concerns, but doesn’t really say why not fully. This may also be a step too far for Hutchison. At this stage it could go either way.”
The warnings come just after BT had its acquisition of EE approved by the Competition Market Authority. The key difference is that the BT deal does not reduce the number of operators in the market.
A new RSA report urges coders to sign a 'Hippocratic Oath' before embarking on AI programmes.
IT security vendor believes APT33 is working for the Iranian government
Darktrace pushes machine learning to take some of the pressure off of IT and security teams
Google also gets its hands on HTC's IP in a non-exclusive deal