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Update: European Commission blocks Three and O2 merger

Last year the telecoms giants Three and O2 agreed a company merger of around £10bn. But today, the regulator, Ofcom, has warned that this merger could damage competition and choice. So could this impact you?

It’s coming up to the end of my mobile phone contract and whilst my phone has lasted quite well, the contract terms haven’t been quite the right fit for me – my signal can be patchy, I don’t use those text messages I’ve paid for, and I definitely need more data for when I’m out and about.

So to cut it short, I’ll be shopping around for my next phone, where I fully expect to roll out my best haggling tactics. But what if, when weighing up my options, there’s not a lot to choose from, only a handful of networks and not a lot of difference in the contract offers.

Well today, the UK telecoms regulator, Ofcom, has confirmed our concerns that this could be a possibility for our mobile market. A merger of Three and O2, two big players in the mobile market, could reduce choice and competition. The bottom line being that this could be detrimental to you, your mobile service, and your pocket.

Impact analysis

Currently, Three is the smallest mobile network in the UK with around 8.8 million customers. It’s a growing company, and is seen as a challenger in the market. With Three’s proposed acquisition of O2 it’s set to become the largest operator in the UK.

The new company would control 40% of mobile connections. It would also cut the number of mobile networks in the UK from five to three – so not an awful lot for you to choose from when you’re shopping around.

Price analysis by Ofcom of 25 countries showed average charges in mobile markets with four competitors were around 10 to 20% lower than in those with just three networks.

Ofcom have also warned that reducing competition in the mobile phone network increases our reliance on fewer companies to continue to develop and improve mobile phone signal and accessibility across the UK.

Keep the market mobile

Last year the Competition and Markets Authority referred the proposed acquisition to the European Commission for analysis. Ofcom have outlined their positioning on this issue, and we reiterate our fears that this merger could have unfair consequences on your service and pocket.

We’ve also written to the European Commission (19 January) to set out our concerns and ask that they look carefully at the claims that consolidation, rather than competition, in the mobile market will drive investment. Should this Three and O2 merger be cleared, it’s essential that we are properly protected from price rises and poor customer service.

Update 11 April 2016: CMA calls for merger block

The Competition and Markets Authority (CMA) has today appealed to the European Commission calling for a block on the proposed merger of O2 and Three. Mirroring our concerns about the proposed merger, the CMA has warned that the deal would be a ‘significant impediment to effective competition’.

Should the merger go ahead, the number of major mobile phone network providers in the UK would be reduced from four to three, evidence shows that fewer players in a market rarely leads to better outcomes for consumers. The deadline for the European Commission to decide on this deal is the 19 May.

Update 11 May 2016: merger blocked

The European Commission has today announced that it has formally blocked Hutchison’s proposed takeover of O2. EU’s antitrust chief Margrethe Vestager said:

‘Allowing Hutchison to take over O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector.’

Alex Neill, our director of policy and campaigns, said in response:

‘It’s right that the European Commission has taken a strong position and acted in the interest of consumers. Telecoms are an essential part of everyday life and this decision, to protect competition and choice, should prevent UK mobile customers losing out.

‘Three and O2 now need to concentrate on tackling low levels of customer satisfaction and improving their service.’

What do you think about the decision to block Three and O2’s merger?

Comments
Member

Every time we hear about companies merging or buying each other out, I think what is the point of monopolies commissions or the Competition and Markets Authority that is referred to above.

Less choice with the competition removed that can only lead to higher prices, people losing their jobs, why does nobody have the guts to say no?

Member
Lee says:
12 April 2016

Yes unfortunately I’m one of them. Worked.for O2 for over 10 years, was made redundant last year. It used to be an amazing company to work for. But such as it goes.

Member
Ian says:
11 May 2016

Competition in the mobile sector is not working. Every time one operator puts up their prices, all of the others follow.

Competition is meant to reduce prices. The notion that there is a ‘choice’ is an illusion.

Member

Although we have a good choice of mobile virtual network operators (such as Virgin and Tesco), we have only four mobile network operators in the UK, and they have not had a very good track record of customer satisfaction. For example, millions of people have been annoyed about rises in monthly payments mid-contract.

I am very strongly opposed to the merger.

Member

The larger they get the worse they get.

Member

This proposed merger must be stopped, if it was given the go ahead our bills ( I have been with o2 for years) will escalate dramatically.

Member
Lee says:
12 April 2016

I don’t see how it can be stopped, as Orange and Tmobile were allowed to join together to make EE and Then BT was allowed to buy EE.

Member

As regards BT Lee the Commission found that BT was a small minority player in the UK mobile market and that the merger with EE would not make it a major competitor to the other mobile companies . That was their legal statement of fact.

Member

With only four mobile network providers that have already come in for considerable criticism, it should not have taken a great deal of effort by Ofcom to realise that it is not in the public interest to allow the merger of two of the companies. I am grateful for Which? expressing concerns about the merger, but what can we do to make sure that it does not happen?

Member
Lee says:
12 April 2016

I don’t see how it can be stopped, as Orange and Tmobile were allowed to join together to make EE and Then BT was allowed to buy EE.

Member
Ian says:
11 May 2016

Those four providers provide coverage in areas with high population and neglect more rural areas. These networks are not competing for customers, it’s the exact opposite.

If there were a single national network infrastructure, Ofcom would be in a position to specify and enforce better coverage for everyone, everywhere.

Member

This would be one merger too many. I recall the power of the four working in concert (officially independently) to shut down effective competition when they all decided to break or not renew their agreements with Phones4you. The company wound up with huge losses – and could not do otherwise. All because, I think, the providers did not like seeing their offerings effectively compared in one shop.

This sort of anti-competitive behaviour would only get worse with less providers.

Member

Southampton Row London WC1B 4AD • Telephone 020 3738 6000 • Facsimile 020 3738 6067
gov.uk/cma • generalenquiries@cmagsigovuk • Twitter @CMAgovUK
Commissioner Margrethe Vestager
European Commission
1049 Bruxelles/Brussels
BELGIQUE/BELGIE

Alex Chisholm
Chief Executive
Competition and Markets Authority
United Kingdom

11 April 2016
Dear Margrethe
,
Case M.7612 Hutchison 3G UK / Telefonica UK

As you are aware, the Competition and Markets Authority (CMA) has serious concerns regarding the
proposed merger between Hutchison 3G UK and Telefonica UK.

We believe this merger would give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the United Kingdom. This letter briefly sets out our concerns
regarding the merger and proposed remedies, which have also been thoroughly detailed by the CMA
in a number of formal submissions to the Commission’s case team.

First however, I would like to praise the level ofco-operation between our two authorities –and indeed with Ofcom –which has been a notable feature ofthis case.From the outset there have been timely, productive and meaningful interactions, and these haveassisted the investigationby helping to ensure that the Commission’s
analysis of the case reflects fully the specificities of the UK market situation.

There is no doubt that this is a multifaceted case, in a complex andconcentrated market,with a number of interested stakeholders ,and important UK-specific characteristics such as the two pairs of network
sharing arrangements. In our view the EC case team has negotiated these complexities with skill, producing a
statement of objections in February which wasa very well-reasoned and thorough assessment of the concerns and which we, as well as Ofcom, were able to support.

The EC statement of objections clearly detailed how this merger is likely to lead to increased prices and/or
a reduction in the quality offered to UK consumers as a result of significant harm to competition in the UK
mobile telecoms market.

While I appreciate the considerable efforts made by the Commission to explore remedies with the merging parties that seek to eliminate the adverse effects identified, it is clear that the remedies offered fall well short of what would be required to meet the relevant legal standard, as detailed in our case submissions.
The proposed remedies are materially deficient as they will not lead to the creation of a fourth Mobile Network Operator (MNO)capable of competing effectively and in the long-term with the remaining three MNOs such that it would stem the loss of competition caused by the merger.

In addition, they fail to address concerns arising from the presence of the merged entity in both the network sharing arrangements, including the greater risk of coordination that this brings. The only appropriate remedy that would meet the criteria that the Commission is bound to apply (ie that the remedies eliminate the competition concerns in their entirety, are comprehensive, effective and capable of ready implementation) is the divestment –to an appropriate buyer approved by the Commission –of either the
Three or O2 mobile network businesses, in entirety, or possibly allowing for limited ‘carve-outs’ from the divested business.

The divestment would need to include the mobile network infrastructure and sufficient spectrum to ensure
a commercially viable fourth MNOin the UK. Absent such structural remedies, the only option available to the Commission is prohibition.

The CMA urges the Commission to act to prevent the long-term damage to the UK mobile telecoms market,
and therefore to the interests of UK consumers,that both of our authorities have predicted will result from this merger.

Yours sincerely
Alex Chisholm
Chief Executive

Member

Hyper-links to pay to view sites like the Financial Times are not that helpful if one is already at the monthly view limit. However it does offer a £1 trial view facility

Member

Agreed dieseltaylor, I’ve changed that link to the Ofcom press release and also added a link to yesterday’s update on the CMA’s announcement.

Member

I really wanted to say well done to a British agency/commission for having some teeth at last.

But…….

According to The Telegraph yesterday….
Britain’s competition watchdog has hit out at a probe by Brussels into Three’s takeover of O2, claiming that the proposed deal could threaten choice in the UK’s mobile phone market.

Hutchison, the owner of Three, agreed to buy rival operator O2 for £10.25bn last year but it has sparked an in-depth investigation by the European Commission, which has since issued a statement of objections stretching to hundreds of pages.

Hmmm, a bit different from the intro as it looks like the investigation was started by Brussels with the UK bleating on the sidelines.

Member

It looks to me as though the Telegraph has twisted the story to suit its anti-EU agenda and is trying to suggest that the European Commission was supporting the merger whereas, as DieselTaylor’s submission of the CMA’s letter makes clear, the EC produced a statement of objections that clearly “detailed how this merger was likely to lead to increased prices and/or a reduction in the quality offered to UK consumers as a result of significant harm to competition in the UK mobile telecoms market”.

Member

John, that letter was written yesterday.

The FT wrote this article – Brussels lays out concerns over O2 merger with Three , back in December 2015.

I don’t give much credit to Brussels for their interferences, but it does look like they are behind the investigation.

Member

Thanks Alfa – I should have checked the chronology.

Member

If Three did buy out o2, it looks like the Chinese owned company would go from owning the smallest share of the mobile network to owning the largest share.

Member

With regard the proposed merger of O2 and Three, I have my own experiences and opinions on this.

I think the following aspects need to be considered before any merger is considered:-
1. Price tariffs fixed for customers at an affordable rate.
2. Protection for local shop operators selling the wide range of handsets with the flexibility to compete with each other.
3. Protection for customers that prices will not be increased dramatically in future years.
4. Network coverage improvement guarantees.
5. Personnel and Information Security of the communication network and customers.
6. Protection of jobs.

Price tariffs fixed for customers at a affordable rate

Average annual contract sale price per mobile device = £120
Total number of annual sales to meet annual turnover target to sustain a combined communications network = 537,837,105
No of mobile phone subscriptions in world at end 2011 = 5,900,000,000
Potential annual turnover could reach £708,000,000,000

I accept that these targets appear high, and to be honest, have been calculated based upon a combined network of all operators. However, it’s a good start in my opinion, and one the UK communication network should consider very carefully.

Protection for local shop operators selling the wide range of handsets with the flexibility to compete with each other

The issue with competition is not really an issue. The issue is the choices and options offered to customers, therefore any merger needs to be safeguarded with the flexibility of the local shop operators to offer various options to it’s customers.

Protection for customers that prices will not be increased dramatically in future years

Any merger should also be safeguarded with a guarantee of no major price increase to contracts. For example, £10 per month for a contract is reasonable in my opinion.

Network coverage improvement guarantees

http://www.which.co.uk/technology/phones/reviews-ns/best-mobile-phone-networks/mobile-phone-coverage-map/?dclid=CKLEpey5h8wCFctiwgodN78E0A
Using the Which! conversation in the link above to determine customers concerns of network coverage, any proposed merger should include network infrastructure improvements.

Personnel and Information Security of the communication network and customers

From a security standpoint, a single communication network is easier to police as criminals have less places to hide as it were.

Protection of jobs

This could potentially provide for 3,906,261 employees worldwide. This is the fixed number of staff to sustain this new group, as work demands contract staff can be taken on as sales exceed targets, etc.
Profit can be paid to all employees at end of each financial year as an incentive bonus. Minimum payable could be £900 gross on meeting the minimum annual turnover target, maximum could be £10,000.
An expense account of £100 per week could be provided to all employees.

Member
Mike says:
12 April 2016

I think the merger should go ahead. The combined capacity of the O2 and Three networks would deliver better coverage and faster speeds to their customers. Thanks to Ofcom Three have a disproportionately small amount of spectrum, and by buying O2 they would even up this situation with EE and Vodafone.

Member

Do we really want China to have the majority share of the UK mobile network?

Member
Mike says:
14 April 2016

If the coverage and performance improves, which it should thanks to the pooled resources of the two networks, then I don’t care who owns it.

Also Three are making interesting concessions:

“Three+O2 will enable other meaningful competitors in the UK market to offer services on a completely level playing field by offering for sale fractional shared ownership interests in our network capacity – in effect selling slices of the same network capacity and quality we use to serve our own customers. This is unprecedented in the UK telecom wholesale market. It eliminates the tricks some wholesalers use to disadvantage their wholesale customers and thus make it harder for them in turn to make competitive offerings to their own customers. This approach will deliver real competition, not just slogans.”

Virgin Media and Sky are rumoured to have already made preliminary agreements to buy network capacity from Three should the merger go ahead. This would further increase competition by bringing a new MVNO, Sky, into the market, and would allow Virgin to be more competitive as it will no longer be at the mercy of its rival BTEE which does not allow Virgin access to 4G.

Member

It is not mergers we need but sharing of the networks by the companies so that a mobile user can use other networks if there is no signal. That would benefit all users and the network operators simply reimburse each other according to use.

Network sharing is used to route emergency calls.

Member

Hi all, an update for you: The European Commission has today announced that it has formally blocked Hutchison’s proposed takeover of O2. EU’s antitrust chief Margrethe Vestager said:

‘Allowing Hutchison to take over O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector.’

Alex Neill, our director of policy and campaigns, said in response:

‘It’s right that the European Commission has taken a strong position and acted in the interest of consumers. Telecoms are an essential part of everyday life and this decision, to protect competition and choice, should prevent UK mobile customers losing out.

‘Three and O2 now need to concentrate on tackling low levels of customer satisfaction and improving their service.’

Member

It seems good news to retain a modestly-sized pool of telecoms providers. I wonder if this result would have been achieved without the weight of the EU behind it?

Member
Ian says:
11 May 2016

What’s the betting that Sky will step in and buy O2?

Will y’all be praising today’s move if that happens?

Member

I heard that ‘3’ [Hutchison] were considering appealing against the ruling. That might just be a knee-jerk reaction. I think four operators is the minimum needed to ensure competition since there is so much dissatisfaction with mobile phone services. I agree with Wavechange that the service providers should cooperate to cover poor signal areas. This is now a mature industry but the companies persist in behaving like upstarts.

Member
Henrik Larsen says:
12 May 2016

I have been with O2 for 15 years – the only provider with decent coverage where I live – the problem is that their packages are expensive and unsuited for modern usage – and their customer service is simply abysmal. I have colleges around in Europe who are very satisfied with 3’s packages (roaming, data etc. ) – however they are slightly less impressed with their coverage – and 3’s coverage in my area is non-existent. A combination of O2’s coverage and 3’s offerings sounds very appealing to me…..
Anyway no one picks O2 for the competitive offers they have – right!?

Member

A few years ago, I wanted a SIM-only contract with data and tethering – I went with O2 because they seemed to have the best deal then.

I no longer use much data or tethering, so I could probably save a bit of money by moving to either Tesco or Giffgaff. However I am not highly motivated to move suppliers just for a small change in costs.

Member
Peter Butler says:
12 May 2016

Big Business !!! The things they try to do is only to boost profits for shareholders and directors they do not care about the people they serve or should serve we are the last inline a long way behind every thing else way way behind

Member
KEIR WATKIN says:
15 May 2016

My “ex” was sold a phone on the 3 network by a cold caller (yes, I know.) Told reception was good, it turned out to be non-existent.. Cold caller wouldn’t take the phone back, then disappeared.
” Ex” cancelled all payments, and took up her complaint with 3. She got nowhere. In frustration I was asked to step in.
Talking to 3 in India was pleasant but got nowhere for six months. 3 sent threatening letters despite repeated explanations to various people. Finally, I spoke to the Regulator who told me to write to 3’s Head Office with a stiff letter. That worked.
3 ARE THE WORST COMPANY WITH WHOM I’VE EVER DEALT.
Good businesses can cope with the odd problem, but 3?

The idea of 3 taking over 02 horrifies me.

Member

The whole issue is confusing to simpletons like me. I bought my phone via Tesco mobile for a number of reasons but they use the O2 network. In our area the network is not that great and the expected merger with Three was the deal clincher for me. With the merger being blocked I am now locked into a poorer network.

Member

Bieldman -It depends on what view you take ,yours is a personal view but in this particulate case there is a monopolistic view , a political view and a general public protection view as what usually happens is that a monopoly at first looks good but then ups its prices because it can without competition this is the capitalist system at work and thats what we live in . Its up to a government to decide whether it is on the side of BB or its voters.