The proposed merger between Hutchison 3G UK and Telefónica UK, better known as Three and O2, could cause "long-term damage to the mobile telecoms market", according to the Competition and Markets Authority (CMA).
Hutchison agreed a £10.25bn deal to acquire rival O2 from Spanish national telecoms operator Telefónica in January after months of speculation. The deal, if approved by the CMA, would make Three the biggest mobile network in the UK.
However, CMA chief executive Alex Chisholm claimed in a letter to European commissioner Margrethe Vestager today that the merger would "give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the UK".
The EC's own analysis of the case was published in February and detailed how the merger is likely to lead to increased prices and/or reduction in the quality offered to UK consumers as a result of the significant harm to competition.
But Chisholm claimed that, while he appreciated the "considerable efforts" made by the EC to explore remedies with the merging parties to eradicate any adverse effects of the deal, these fell "well short" of meeting the relevant legal standard.
The proposed remedies are materially deficient, according to Chisholm, as they would not lead to the creation of a fourth mobile network operator to effectively compete with Three, BT-owned EE and Vodafone.
He added that the EC's remedies also fail to address concerns arising from the presence of the merged entity in both network sharing arrangements, including a greater risk of co-ordination.
"The only appropriate remedy that would meet the criteria that the EC is bound to apply is the divestment - to an appropriate buyer approved by the EC - of the Three or O2 mobile network businesses, in entirety, or possibly allowing for limited ‘carve outs' from the divested business," he said.
Chisholm explained that the divestment would need to include the mobile network infrastructure and sufficient spectrum to ensure a commercially viable fourth mobile network operator in the UK.
He emphasised that the only option available to the EC if these structural remedies are absent is "prohibition".
"The CMA urges the EC to act to prevent the long-term damage to the UK mobile telecoms market, and therefore to the interests of UK consumers, that both of our authorities have predicted will result from this merger," he concluded.
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