EU blocks Three & O2 merger: What it means for the consumer

A highly likely £10.3bn deal would have changed Britain's cellular landscape forever by now, except that it was blocked by the EU moments before it touched the finish line.

Three and O2 have been left frustrated after EU competition commissioner Margareth Vestager refused to look away. The owner of Three is now mulling legal action even though O2 sounds more accommodating.

Through the said deal, Three was to merge with O2 and to compensate for the lack of subsequent competition in the mobile network market, Three was to implement a five-year freeze in prices while pouring in billions of pounds in investments. However, such measures didn't seem to impress Vestager who, thanks to her recent posturing against Google, has made it clear that she has quite a bit of fight left in her. While dismissing the merger, she said that the commission had 'strong concerns that UK mobile customers would have had less choice and paid higher prices as a result of the takeover, and that the deal would have harmed innovation in the mobile sector.'

'We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality. The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses,' she added. As per the commission, the merger would result in higher prices, less choices for consumers, would negatively affect quality of service for UK consumers and leave fewer carriers to host MVNOs (Mobile Virtual Network Operators) in their networks.

Hong Kong-based CK Hutchison, the owner of Three, are terribly disappointed. Through the cancellation of the merger, the UK is surely missing out on £10 billion in investments in digital infrastructure as well as enhanced network speed, capacity and reach in the coming years. Not that they haven't put money on expanding Three's reach in the past, we're sure they'll continue to do so, but the dollar value may be slightly different.

'We are deeply disappointed by the Commission’s Decision to prohibit the merger between Three UK and O2 UK. We will study the Commission’s Decision in detail and will be considering our options, including the possibility of a legal challenge,' said CK Hutchison in a statement.

However, O2 hasn't taken the cancellation to heart as much as CK Hutchison have. 'We work in an industry of constant change and have learnt how to manage that change better than most. Regardless of what happens next, we will continue to deliver for our customers as we always have,' said an O2 spokesperson.

The EU Competition Commission now has Ofcom's support who believes that the cancellation was the 'right outcome' for consumers. 'Competition must be sustainable, and regulation should support it. We will aim to do so through tools such as market reviews or auctions of mobile airwaves,' said the cellular industry watchdog.

"It comes as little surprise that the EU competition authorities have said enough is enough on the rapid concentration of the UK mobile telecoms sector,' said John Colley, Professor of Practice in the Strategy and International Business group at Warwick Business School. 'Following the merger of T-Mobile with Orange, subsequently purchased by BT, the industry was reduced to four players. The proposed merger of Three with O2 would have made it three players and the evidence from markets elsewhere shows that three players results in higher prices for consumers compared to four. In effect competition reduces and the consumer pays the price for that.

'It is clear that the merger would have substantially reduced costs in requiring less shops, marketing, administration, head offices and there would have been benefits in terms of reduced network operating costs. However, the reduced competition would have meant that Three/O2 would not have to pass those savings on to the consumer," he added.

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