Three-O2 merger should be prohibited if there is no fourth mobile operator, says CMA

The Competition and Markets Authority (CMA) has "serious concerns" with regards to the proposed merger between Hutchison 3G UK and Telefonica UK - better known as Three and O2.

Hutchison agreed a £10.25bn deal to acquire rival O2 from Spanish national telecoms operator Telefonica back in January, after months of speculation. The deal, if approved by the CMA, would make Three the biggest mobile network in the UK.

However, in a letter from CMA chief executive Alex Chisholm to European Commissioner Margrethe Vestager sent today, Chisholm explained that the merger would "give rise to a significant impediment to effective competition in retail and wholesale mobile telecoms markets in the UK".

The EU Commission's own analysis of the case was published in February, and it detailed how the merger is likely to lead to increased prices and/or reduction in the quality offered to UK consumers as a result of the significant harm to competition in the UK mobile telecoms market.

But Chisholm said that while he appreciated the "considerable efforts" made by the Commission to explore remedies with the merging parties to eradicate any adverse effects of the deal, he said that the remedies offered fell "well short" of what would be required to meet the relevant legal standard.

He said that the proposed remedies are materially deficient as they wouldn't lead to the creation of a fourth mobile network operator to be able to effectively compete with Three, BT-owned EE and Vodafone.

Chisholm said the EU Commission's remedies also fail to address concerns arising from the presence of the merged entity in both the network sharing arrangements, including the greater risk of co-ordination that this brings.

"The only appropriate remedy that would meet the criteria that the Commission is bound to apply... 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," he writes.

Chisholm explained that the divestment would need to include the mobile network infrastructure and sufficient spectrum to ensure a commercially viable fourth mobile network operator in the UK.

He emphasised that if these structural remedies were absent, then 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," he concluded.

The CMA approved BT's £12.5bn takeover of EE in January.