CK Hutchison is hoping to gain EC support for the merger of 3 UK and O2 UK by offering to give one third of the proposed entity’s network capacity to rivals, but it is pushing back against a bigger demand, said Financial Times.
The Commission wants the creation of a fourth network to counterbalance the 3/O2 combination, but Hutchison is resisting the move.
The merger of 3 UK and Telefonica O2 would create the UK’s largest operator, as well as reducing the number of operators from four to three (excluding MVNOs).
Hutchison’s position is that three strong operators provide more competition, and hence better value for consumers, than a four-player set up where two are weaker.
However, the EC appears unlikely to accept such a proposition, arguing that fewer operators equals higher prices.
The deadline for the final decision on the deal is 22 April. As the date approaches, so will the tension rise between the two sides as they try to reach an agreement.
Hutch argued its offer is more realistic than the creation of a full-blown separate network, which would require considerable investment, according to sources.
Offering about 30 per cent of the proposed entity’s total network capacity appears to be Hutchison’s main pitch to the regulator. The capacity could be given to one rival or split into a number of lots through so-called fractional shared ownership.
The offer is thought to be on a permanent basis to counter criticism of shorter term wholesale arrangements or MVNO agreements.
Hutch has already lined up potential takers of long-term capacity, such as Sky, which would prefer such an arrangement to taking on expensive infrastructure.
It also offered to sell O2’s 50 per cent stake in Tesco Mobile, a high profile MVNO, to the supermarket, a move it claims would bolster competition. However, last year it was reported that Tesco was eager to sell its stake as it sought to pay down debt, although it’s possible that it has had a change in thinking.
The proposal put forward by Hutchison is short of what the commission wants, which is a new network-based entrant.
It could offer a starter package of some capacity and sites on the O2 network to a new entrant, according to some people close to the discussions, in what sounds like a compromise option.
Among those potentially interested are Iliad, Virgin Media and TalkTalk.