An in-depth investigation into CK Hutchison‘s proposed tie-up was expected given the EC’s previous examinations of in-market mobile mergers, and follows the antitrust authority’s recent hostility towards a planned mobile joint venture in Denmark between TeliaSonera and Telenor, eventually abandoned in September.
The European Commission has begun a Phase II review of CK Hutchison’s (SEHK:0013) bid to merge British mobile operator O2 with its UK subsidiary Three.
An in-depth investigation was expected given the EC’s previous examinations of in-market mobile mergers, and follows the antitrust authority’s recent hostility towards a planned mobile joint venture in Denmark between TeliaSonera and Telenor, eventually abandoned in September.
That deal, like Hutchison’s proposal in the UK, would have seen the mobile market shrink from four players to three, although subsequently Competition Commissioner Margrethe Vestager (pictured) has said there is no “magic number” of MNOs.
Laying out its concerns regarding the deal, the EC highlighted three main issues.
Three is the UK’s smallest mobile operator and is the challenger in the market. The regulator said it was worried the deal could “remove an important competitive force”, limiting incentives “to exercise significant competitive pressure on the remaining competitors”, which could lead to higher prices and less investment networks.
The EC also said it was concerned that having one less network would weaken MVNOs when they came to negotiate their wholesale agreements with network operators.
Lastly, the EC suggested having one less MNO risked increasing the likelihood that operators “will coordinate their competitive behaviour and increase prices on a sustainable basis on the retail and wholesale markets”.
Vestager said: “With this investigation we want to ensure that consumers in the UK do not pay higher prices or face less choice as a result of this proposed takeover.”
In a statement Hutchison said: “We believe the transaction will be good for both competition and consumers in the United Kingdom and are confident that the acquisition will be approved by the Commission.”
“CK Hutchison has had open and constructive discussions with the Commission throughout the first phase of the merger review process. We will continue to work closely with the Commission to obtain clearance for the acquisition.”
Vestager recently expressed her preference for structural remedies when addressing competition concerns brought about by telecoms M&A. This represents a retreat from the more liberal approach taken by her predecessor Joaquín Almunia, whose remedy requirements had focused on concessions for MVNOs.
“There are good reasons to prefer structural remedies in horizontal mergers, especially when they are immediately effective and solve the competition concerns once and for all,” Vestager said in a speech at the start of October.
Other remedies may be appropriate in some instances, she said, warning however that these were riskier to implement and difficult to monitor.
“They are also in place only for a defined period of time – however long. So this can make them less effective in guaranteeing the ability of the beneficiary company to compete in the long run.”
In mid-October EC vice-president Andrus Ansip said in-market consolidation was “not necessarily the answer” to increase investment, and that network sharing agreements should suffice, much to the chagrin of investors.
The EC has 90 days, until 16 March, to review the transaction. The decision means that, as expected, the review has not been referred to the UK’s Competition and Markets Authority, which had asked to examine the tie-up rather than the EC.
Hutchison and Telefónica have said they expect to close their UK merger in mid-2016, following a binding agreement signed in March. Hutchison will pay £10.3bn (US$15.3bn).
HSBC and Moelis advised Hutchison while Telefonica worked with UBS.
