The European Commission said it’s best placed to probe CK Hutchison Holdings’ proposed acquisition of Telefonica’s 02 unit in the UK, rejecting a request to investigate the deal from Britain’s antitrust regulator.
The Commission said in an e-mailed statement yesterday that it can ensure consistency in the application of merger rules, given its “extensive” experience in the sector. 02 and Hutchison declined to comment on the ruling.
Li Ka-shing’s Hutchison agreed to acquire the O2 unit in March, in a deal that would create Britain’s biggest wireless provider by customers. The UK’s Competition and Markets Authority in October asked to take over the probe saying the tie-up would be most felt in the UK and that it would avoid duplication as it was already looking into a separate deal in the same industry between BT Group and EE.
The European Commission generally rejects such requests, as it develops ground rules for mobile-phone competition. EU regulators spurned a similar UK bid for jurisdiction over the deal that created EE five years ago.
Shares of Telefonica declined 1.7% to €11.07 at 3:53pm in Madrid. CK Hutchison added 0.4% to close at HK$103.70 in Hong Kong. In its statement yesterday, the commission said it will continue to cooperate closely with the UK authority. It has until April 18 to take a final decision to clear or block the telecommunications deal.
Following the EU ruling, the CMA said it intends “to make representations on the competition impact of the merger in the UK as well as on potential remedy proposals made by the parties.”
Sharon White, the head of UK’s Ofcom agency, has been openly critical of the merger of Hutchison’s Three with Telefonica’s O2 and is expected to tell EU Competition Commissioner Margrethe Vestager she’s concerned about the potential impact of the transaction.
“What Sharon needs from Vestager is reassurance that consumers aren’t going to lose out if she decides to push through the Three-O2 deal,” said Matthew Howett, an analyst at consultancy Ovum. “By that I mean losing tariffs that offer things like unlimited data and making sure the kind of innovation we’re used to seeing from Three continues.”
The Brussels meeting comes as Vestager — who thwarted TeliaSonera and Telenor’s attempt to merge their Danish units last year — is poised to tell Three and O2 in a formal statement of objections what issues they need to address before she can approve the transaction, according to two people familiar with the EU review.
In September, TeliaSonera and Telenor scuttled plans to merge their Danish businesses after they reached an impasse with Vestager on conditions for the deal. The UK mobile phone transaction is the first of several this year that’s likely to further test the resolve of Vestager, who says she’s wary of phone deals that don’t benefit customers.
In Italy, Hutchison is also planning to merge its local unit with that of VimpelCom In France, Orange wants to buy Bouygues’ mobile phone unit. Orange CEO Stephane Richard said this week he believes the deal would be examined by France’s merger authority and not by the EU, and entail some asset sales to rivals to alleviate regulatory concerns.
Vestager’s predecessor’s decisions to clear deals in Austria, Ireland and Germany in the last five years attracted criticism for failing to prevent higher phone bills or to stoke new competition. “It’s difficult to find evidence” showing that market consolidation “brings more investment,” Vestager told the Spain’s El Economista newspaper last week. “What we see is that it’s the shareholders that get the benefits, not the clients.”
Ofcom last year delayed an auction of spectrum used by companies to send and receive data from customers until the EU had ruled on the deal. Ofcom said Hutchison and Telefonica had threatened to sue it if a spectrum decision came before an EU ruling. Ofcom regulates telecoms providers while the EU focuses on whether a deal affects competition and can block a bid.
Ofcom’s intervention adds to criticism of the Three transaction from mobile virtual network operators, or MVNOs, which rent space from network operators like Three or Vodafone Group and compete directly with them by selling calls or data services to consumers.
MVNOs are telling the EU that merging two networks may leave them with fewer options as other operators become more reluctant to offer access to smaller rivals, according to two other people with knowledge of the review, who all asked not to be named because the process is private.
They argue that combining Three and O2 in the current market may leave them with only one or two networks willing to sell them space, creating the risk that they could be squeezed out.
Another concern is that Vodafone may be increasingly reluctant to do deals with MVNOs that are uncertain whether BT Group will maintain their access as it completes its takeover of wireless carrier EE, two people said.
The UK has about 100 MVNOs, according to Howett, with around 70 running on BT’s EE network. Virgin Mobile Holdings and Tesco’s MVNOs have more than 5mn customers, according to MVNO Dynamics, an industry website.
Maintaining competition for mobile services requires “long-term remedies that guarantee access to new technologies such as 4G and 5G” to allow MVNOs compete directly with operators, said Jacques Bonifay, chief executive officer of Transatel, a French MVNO, who also heads MVNO Europe, an industry group.
Hutchison declined to comment on its plans for MVNO access or the EU merger review process. Telefonica declined to comment. While the European Commission said Vestager would meet White to discuss competition matters regarding telecom markets, it declined to comment on a potential statement of objections.
Vodafone said it remains committed to the MVNO market in the UK and has a number of partners, including Amazon.com and Lebara. BT didn’t immediately respond to a request for comment.
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