Update: European Commission blocks Three and O2 merger

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.

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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

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.

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.

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.