The European Commission opened an in-depth investigation into Hutchison’s takeover bid for Telefonica’s O2 in the UK, a deal which would reduce the number of operators in the country from four to three.
“The Commission has concerns that the transaction could lead to higher prices, less choice and reduced innovation for customers of mobile telecommunications services in the UK,” it said in a statement.
The transaction would combine Telefonica’s O2 UK with 3 UK, a subsidiary of Hutchison, which are respectively the second and the fourth largest operators in the country. The deal would create the largest operator, ahead of rivals EE and Vodafone.
The Commission’s initial market investigation uncovered three main concerns.
Firstly, it is worried that the transaction would remove an important competitive force and that the merged entity would have only limited incentive to exercise competitive pressure on the remaining competitors. 3, in particular, has seen some aggressive pricing.
Secondly, the transaction would reduce the number of operators that are willing to host MVNOs. Prospective and existing MVNOs would have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms.
Thirdly, the reduction in the number of competitors following the merger risks leading to a weakening of competitive pressure and increased likelihood that operators will coordinate their competitive behaviour. This could lead to increased prices on the retail and wholesale markets.
The commission was officially notified about the transaction on 11 September 2015. The Commission now has 90 working days, until 16 March 2016, to take a decision.
The UK’s Competition and Markets Authority has been pressing the commission to take on the investigation of the Hutch-Telefonica deal. Earlier this week, the CMA gave conditional approval to the UK’s other mega-deal in telecoms: BT’s proposed acquisition of EE.