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Here’s Why the EU Just Blocked a Major Telecoms Merger

May 11, 2016, 10:41 AM UTC
European Union Commissioner for Competition Margrethe Vestager of Denmark attends her hearing at the European Parliament in Brussels, on October 2, 2014. AFP Photo/Thierry Charlier. (Photo credit should read THIERRY CHARLIER/AFP/Getty Images)
Photograph by Thierry Charlier — AFP/Getty Images

One of Europe’s most hotly-anticipated telecoms mergers is off, after the European Commission blocked the $15 billion union of the U.K.’s Three and O2 mobile operators.

CK Hutchison Holdings, the Hong Kong-headquartered owner of Three U.K., recently unveiled network-sharing agreements as way of easing regulators’ fears over the merger with Telefonica’s British arm, which would have created the largest mobile operator in the country.

But to no avail. According to the Commission, the O2-Three merger would have led to less choice and higher prices for consumers, by reducing the number of network-owning operators from four to three.

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In this, competition commissioner Margrethe Vestager followed the lead of the U.K.’s own telecoms operator, Ofcom, which said in February that four operators was just right for the market. The U.K. Competition and Markets Authority also wasn’t a big fan of the proposed merger.

Here’s what Vestager said on Wednesday:

“We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality. The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses.

“Allowing Hutchison to takeover O2 at the terms they proposed would have been bad for U.K. consumers and bad for the U.K. mobile sector. We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal. It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this.”

The Commission noted that the combined operation would have had a market share of over 40%, and would have had less incentive than its constituent parts to compete with rivals Vodafone and EE. The consolidation would have also weakened the negotiating position of virtual network operators looking for connectivity to resell.

In a statement, CK Hutchison said it was “deeply disappointed” by the Commission’s decision and was considering the possibility of a legal challenge.

“We strongly believe that the merger would have brought major benefits to the U.K.,” it said.

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Vestager last September effectively blocked the merger of Telenor and TeliaSonera’s operations in her native Denmark—she set conditions for the merger that led the two Scandinavian telcos to just give up.

Her department is also currently investigating the proposed merger of the Italian operations of Three and Wind, owned by Russia’s VimpelCom. Again, this would reduce the number of major players in the country from four to three.

Vestager’s predecessor, Joaquin Almunia, was much more amenable to the idea of reducing the numbers of big players in European countries, giving the green light to such mergers in Germany (O2 and E-Plus) and Ireland (again, O2 and Three).