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O2-Three Merger Would Be Bad News, Warns U.K. Regulator


The U.K. has Europe’s most competitive mobile operator market but, as in many countries right now, carriers are looking to consolidate. The British telecoms regulator, Ofcom, is advising EU competition authorities that the trend risks going too far.

One big telecoms merger just went through without a hitch, namely BT’s takeover of EE, the joint venture of Germany’s Deutsche Telekom and France’s Orange — BT announced a new organizational structure Monday morning to take account of the acquisition.

However, BT was not a significant mobile player before it picked up EE. A far more contentious merger is that proposed between O2, owned by Spain’s Telefonica, and Three, owned by Hong Kong’s CK Hutchison Holdings. This tie-up would reduce the number of British mobile networks from four to three, and Ofcom is not amused.

“The combined group would control more than four in 10 mobile connections,” Ofcom CEO Sharon White wrote in the Financial Times. “Some argue that operators must consolidate in order to boost revenues, increase efficiency and widen their scale to invest. But this is not a broken market.”

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White pointed out that U.K. mobile companies generated £15 billion ($21 billion) in revenue last year and have been upgrading to 4G while maintaining healthy cash flow margins. “Competition, not consolidation, has driven investment,” she insisted.

In particular, White said Ofcom was worried that over-consolidation would raise prices (the U.K.’s are extremely low by European standards) and reduce the incentive to boost network speeds. It could also “shift the balance of power” between the networks and independent retailers, who currently keep down the prices of both handsets and contracts.

Ofcom has been liaising with the European Commission’s competition directorate about the proposed merger. Not that long ago, under former competition commissioner Joaquin Almunia, the department started conditionally approving four-into-three consolidation moves.

However, the new competition commissioner, Margrethe Vestager, has very different ideas. When she expresses her much-anticipated decision on the O2-Three deal — possibly as soon as this week — there’s every chance that the shift towards fewer mobile carriers in European countries could hit a wall.