The European Commission has blocked the proposed merger of O2 UK and 3 UK, saying competition on the UK mobile market would suffer if reduced to only three network operators. The decision is in line with calls from UK regulators to maintain four players and follows lengthy negotiations with 3's owner CK Hutchison over possible concessions to maintain competition.
The EC said the takeover would have removed an important competitor, leaving only two network operators, Vodafone and BT’s Everything Everywhere (EE), to challenge the merged entity. The reduced competition would likely have resulted in higher prices for mobile services and less choice for consumers, the EC's analysis found. 3 UK, as the smallest and most recent entrant on the market, served as an important driver of competition, while O2 already is the biggest operator in terms of customers and second-largest in revenues.
In addition, the Commission feared the merger would have slowed the development of mobile network infrastructure in the UK. The merged entity would have been part of both network-sharing arrangements in the UK, MBNL and Beacon, as 3 UK already cooperates with EE and O2 works with Vodafone. This would have given the new entity a full overview of the network plans of both remaining competitors, Vodafone and EE, putting the latter two at a disadvantage when it comes to rolling out new technologies.
The reduction in networks from four to three would also mean reduced access for MVNOs to host networks, limiting another source of competition. The remedies proposed by Hutchison, which are thought to have included reserving network capacity for a fourth operator or MVNOs, failed to adequately address the "serious concerns", the Commission said in a statement.
Hutchison agreed the takeover of O2 from Telefonica in March 2015 for GBP 10.25 billion. The deal would have led to 3 UK jumping from fourth to first place on the UK market, with a combined market share of over 40 percent. Hutchison said it was "deeply disappointed" by the EC's decision and would consider a legal appeal. The company said its focus will turn now to securing EC approval for its other proposed merger, in Italy between 3 Italia and Vimpelcom's Wind. The EC has already voiced similar concerns about that deal.
Telefonica had hoped to use the proceeds from exiting the UK market to reduce its debt. In a short statement announcing the EC's decision, the Spanish operator said its financial targets remain unchanged. It did not comment on whether it would seek a new buyer for O2.
