Spanner in the works for O2 and Three Merger

11-Apr-2016

 

The planned O2-Three merger has come under threat this week with The Competition and Markets Authority (CMA) expressing "serious concerns” about a deal. The CMA has warned that a tie-up could cause "long-term damage” to the UK mobile industry as the number of providers would drop from four to three.

This news comes after the CMA approved the BT acquisition of EE in January for £12.5bn. The European Commission will have the final say in the matter and historically they have given approval for deals in Ireland, Austria and Germany where the numbers of mobile networks went from four to three also.

A study by regulator Ofcom has found that in markets where there are only three operator’s, prices are typically 10-20% higher for consumers.

This has all come at a sensitive time politically for UK as we approach the Brexit vote. UK regulators and campaigners for Brexit have been pushing for the final decision to rest with the UK and not Brussels.

"At best we see UK deal approval odds at 50/50. The risk, here, is the decision could become increasingly political (from a UK perspective it already is) as it’s so close to the Brexit vote,” said Mandeep Singh, a partner at Redburn analysts.

O2 and Three have argued that Sky and Tesco Mobile are looking to use their network which would create more competition in the market. The proposal is that either Three and O2 are forced to sell off parts of their network and spectrum in order to allow a fourth entrant to the market or the only other option would be to block the deal.

Will the EC block the deal? A similar merger in Denmark has recently collapsed after Brussels attached various concessions to the deal, which included selling off spectrum.

The potential problem we could end up with if a deal were to go ahead is that the remaining operators may focus on their niche strengths. This could leave Vodafone targeting business customers, BT/EE dominating the multi-play market across mobile, TV and broadband, and that would leave O2/Three free to mop up stand-alone mobile deals. The danger is that each operator will focus on sucking cash out of their high-value customers rather than going after other parts of the market through innovation.

A decision will be made by the EC by the 19th May.

Source: COMMS Business 11th April 2016


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