Three's takeover of O2 to face EU investigation

European Commission to call in Three/O2 deal for closer examination

Hutchison Whampoa's deal to merge its Three mobile network with rival O2 will face an investigation by the European Union's competition authorities.

In response, Hutchison has indicated that it is prepared to sell off network capacity and frequencies in a bid to mollify the European Commission's competition concerns.

The claims were made in a report by newswire Reuters, which suggests that the European Commission is preparing to take a harder line on consolidation in the mobile telecoms sector after several years in which they were tacitly encouraged.

Hutchison's plans to acquire Telefonica-owned O2 - formerly BT's Cellnet mobile unit - would have catapaulted it from the UK's fourth biggest mobile operator to the biggest, while reducing the number of infrastructure-owning players from four to three.

It follows the rejection last week by EU regulators of a proposed merger of TeliaSonera and Telenor in Denmark, the first major merger in mobile telecoms that had been scuppered by regulators since 2013. "It caused investors to worry that EU Competition Commissioner Margrethe Vestager was taking a harder line than predecessor Joaquin Almunia," claimed Reuters.

According to credit-ratings agency Moody's, if the EU blocks the deal, Hong-Kong-based industrial giant Hutchison Whampoa may re-consider its expansion and other long-term projects in the EU.

The EU competition authorities have a 16 October deadline for its preliminary review of the deal. A full investigation is increasingly expected, which Reuters suggests will take as long as five months to complete.

According to Reuters, EU competition authorities' concerns are focused on the fact that the deal would concentrate half of the UK's "most attractive mobile spectrum" in low-frequency bands in the hands of one company.

Its dominance combined with the cost of exploiting the frequencies would make it unattractive for rivals to purchase and exploit. It would also own 37 per cent of the spectrum in high-frequency bands above 1800 megahertz.

On top of that, Hutchison Whampoa's Three UK subsidiary already shares a 3G mobile network with EE, which itself is subject to an acquisition by BT, while O2 also shares some mobile towers with Vodafone.

Both Hutchison Whampoa and the European Commission declined to comment on the reports.