A letter from the Competition and Markets Authority (CMA) to the European Commission (EC) is a blow to CK Hutchison’s £10.5 billion bid for Telefonica O2.
The UK competition watchdog said merging two of the UK’s four operators “would give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the United Kingdom”.
The EC has taken the lead in accessing the Hutch (3)/O2 deal, in contrast with the UK’s other high profile telecoms takeover, BT’s acquisition of EE, where the CMA was the driving force.
The UK body praises the EC’s efforts to find remedies with the merging parties but say those on offer fall a long way short.
“The proposed remedies are materially deficient as they will not lead to the creation of a fourth mobile network operator capable of competing effectively and in the long-term with the remaining three MNOs…”, its letter said.
Hutch has argued strongly that robust competition will continue via capacity-based agreements with rivals such as Sky and Virgin Media, but the CMA’s letter disagrees.
Another concern expressed by the CMA was about the presence of Hutch/O2 in both of the UK’s two network-sharing joint ventures.
The only satisfactory remedy for the merger is divestment of either the 3 or O2 network businesses to a buyer approved by the EC in their entirety, or by allowing a limited carve-out from the divested business, said the UK competition watchdog.
Any divestment would need to include mobile infrastructure and sufficient spectrum to ensure “a commercially viable fourth MNO in the UK”, the CMA argued.
“Absent such structural remedies, the only option available to the Commission is prohibition”, it concludes.
Hutch accuses Vodafone of trying to extract £1B-plus
Separately, CK Hutchison accused Vodafone of demanding “more than £1 billion” in return for accepting the merger of 3 and Telefonica O2 in the UK, said The Times.
The deal is currently before the European Commission, which is considering the objections from other players who claim the merger will damage competition.
Vodafone argued that the merger will be bad because 3/O2 will hold a stake in two network-sharing joint ventures, Project Beacon and MBNL. 3 could migrate O2 customers from Beacon, owned jointly by Vodafone and O2, to MBNL, which 3 runs with EE.
But CK Hutchison’s finance chief, Frank Sixt, accused Vodafone of “naked self-interest” in its complaint.
“The most distasteful aspect of Vodafone’s conduct is that they have consistently tried to use the competition regulatory process to extract over £1 billion from Hutchison as the price for dropping their objections to the merger.”
Hutch complained to the EC about Vodafone’s behaviour, he said.
Vodafone wants to take a majority stake in Project Beacon, currently 50-50 owned with O2, and demanded compensation worth hundreds of millions of pounds for alterations to the infrastructure. In addition, O2 should bear a higher proportion of upgrade costs to improve 4G services, the report said.
CK Hutchison said it will finish the current upgrade but threatens legal action if Hutch/O2 does not keep up with its share of commitments.