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What the failed O2-Three merger means for European telecoms


12-May-16 15:15
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When British media and telecoms operator Ofcom blocked a significant deal that promised to shake up the UK’s mobile markets, Hutchison —the owners of Three— may well have anticipated an uphill battle to convince bureaucrats in Brussels of its potential benefits, once the deal had been referred to the European Commission.

 

Despite Hutchison’s best efforts to convince policymakers that a deal to merge Three and O2 would address Britain’s network coverage issues, improve network speeds, and drive prices down, the Commission deemed that the £10.5bn acquisition of O2 would impinge on the robustness of the UK’s existing mobile telecoms market. It was therefore blocked on the grounds that having 3 major suppliers as opposed to 4 would lead to an increase in prices and will present consumers with less choice when picking a supplier. In short, when presented with the option of permitting market consolidation or protecting consumers, the Commission went for the latter.

 

The news however, will come as no surprise to those who had been following the decision, since the Commission has adopted a more sceptical approach to mergers under competition commissioner Margrethe Vestager. Setting the tone early on in her appointment, Ms Vestager opposed a similar merger between two Danish operators Telenor and TeliaSonera, symbolising a departure from previous commissioners who were a lot more accommodating when it came to market consolidation.

 

Hutchison remain defiant that the acquisition would have brought major benefits to the continent, outlining plans to use the combined revenues between Three and O2 to invest in much needed infrastructural upgrades, such as developing 5G in Europe. If the merger were approved, the two would have accounted for 40% of the UK’s mobile market, raising legitimate questions around pricing.

 

Meanwhile, O2’s parent company Telefonica is now left in a more precarious position as it looks to offset some of its business assets to pay out healthy dividends to shareholders following a difficult year. American telecoms company Liberty Global has expressed its intention to take over Telefonica’s UK business, and could have a better chance of getting accepted by the Commission because of its smaller presence in Britain’s mobile telecoms market.

 

The decision is sure to keep mobile prices stable, but carries implications for the rest of the continent, as it is sure to set a precedent for prospective mergers for the foreseeable future. Business and domestic consumers are likely to benefit from the regulators decision when negotiating mobile contracts.



This article is a piece of independent writing by a member of Procurement Leaders’ content team.


Zac Uzun by Zac Uzun

 
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