May 17, 2016

European Commission blocks potential UK mobile merger

The European Commission recently blocked a O2-Three mobile network merger.

Like regulators in the U.S., the European Commission has been more active in scrutinizing and investigating potential merger deals that could limit consumer choices and be damaging to certain industry markets. In a recent decision, the commission blocked a potential acquisition that could have left the entire U.K. with only three main options for mobile network operators.

Last year, Hong Kong-based CK Hutchison's U.K. telecommunications and Internet service provider, Three, offered to buy O2, Spain-based Telefónica's telecommunication service provider in the U.K., in a multibillion dollar deal. Since this time, the two organizations have battled with antitrust regulators to approve one of the country's largest mobile telecoms transactions, according to the Financial Times.

What does this failed merger mean?
CK Hutchison explained that this deal would have been beneficial for consumers, as it would have boosted network capacity, introduced new high speeds, introduced price competition and extended coverage options. Despite this belief, the newly merged company would be one of only three major mobile network providers in the U.K., with Vodafone and BT's Everything Everywhere left to fight the new organization.

At this moment, CK Hutchison told BBC News that it is considering taking legal action to challenge the commission's decision. While CK Hutchison is not pleased about the commission's decision, an O2 official stated that this failed merger does not significantly impact its U.K. sales.

"We work in an industry of constant change and have learnt how to manage that change better than most," an O2 spokesperson told BBC News. "Regardless of what happens next, we will continue to deliver for our customers as we always have."

What are the commission's main concerns?
European Commissioner for Competition Margrethe Vestager explained that the commission wants the mobile telecommunication sector to remain competitive so that consumers can still be able to use mobile services at fair prices and with high-quality network options. This potential merger, Vestager argued, would be bad for both the U.K. mobile industry and U.K. consumers.

"We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal," Vestager said. "It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this."

While this deal is not likely to continue following the commission's decision and Vestager's staunch antitrust outlook, future deals may fall under the same level of scrutiny. As the commission's main concerns with this deal were the potential for higher prices and reduced choices for consumers, among many other reasons, this failed merger may serve as a lesson for future deals in the EU.