Higher prices, network disruption and a threat to high street competition are the main concerns that Sharon White, chief executive of UK telecoms regulator Ofcom, expressed over the proposed merger of 3 UK and Telefonica O2.
White (pictured) put these arguments to the European Commission which is reviewing the bid by 3 UK parent, CK Hutchison, for rival Telefonica O2.
The commission was expected to publish its decision last week but its failure to do so indicates intense negotiations with interested parties.
White writes in the Financial Times that the UK is “not a broken market”, where last year operators generated a massive £15 billion in revenue while in turn investing billions in 4G deployment and maintaining healthy margins in excess of 12 per cent. “Competition, not consolidation, has driven investment,” she concludes.
White argues allowing 3 UK and O2 to combine would mean higher prices for consumers and business, since the former has traditionally behaved as the UK’s market disruptor.
Ofcom analysed mobile pricing over recent years across 25 countries, said White. Its findings show that prices on average are between 10 per cent and 20 per cent lower in markets with four operators, including a disruptive player, than in those with only three operators.
Her second concern is that the upheaval following any merger could harm service to end-users. White notes that the UK’s four operators currently have network sharing deals that cut across merger lines: one is between 3 UK and EE, while the second is O2 and Vodafone. Unravelling these deals is not in the best interests of customers, she suggests.
Her third anxiety is the impact on high street competition where independent mobile phone retailers could be squeezed by the merger, with the result that prices go up, and tariff innovation goes down.
White also says establishing a new operator to bring the number back up to four “might be one answer”. Margrethe Vestager, the European Commissioner for Competition, has favoured this approach in other markets.
Last week a report said Xavier Niel, the billionaire behind French disruptor Iliad, met with Sharon White for a preliminary discussion about entering the UK market.
However, White acknowledges even a deep-pocketed new entrant would need time, and considerable investment, to make an impact.
The 3 UK/Telefonica O2 combination would control more than four in ten mobile connections in the UK, said White, a proportion borne out by GSMA Intelligence figures which show the combination would have a 42 per cent share of connections.