Sharon White, the CEO of UK telecoms regulator Ofcom, has asked the European Commission not to clear the approved domestic merger between Three and O2. Echoing the words of European Commission competition commissioner Margrethe Vestager, who is reviewing the deal, White argued: “Competition, not consolidation, has driven investment” in the UK market.
Sharon White, the CEO of UK telecoms regulator Ofcom, has asked the European Commission not to clear the approved domestic merger of Three and O2. The two are the respective UK subsidiaries of CK Hutchison (SEHK:0013) and Telefónica (MAD:TEF).
She argued that the £10.5bn (US$15bn) deal, currently undergoing a Phase 2 review, would be harmful to competition. Combined, the two would have a 40% share of the market, which would lose its maverick player, Three. The European Commission is imminently expected to present its statement of objections to the transaction.
“Competition is the lifeblood of today’s telecoms market, spurring innovation, better coverage and fair prices,” said White in an opinion piece in today’s Financial Times. White noted that UK contracts had dropped by two thirds in 2003 to become among Europe’s lowest – something she attributed to the four-player market. In the regulator’s analysis of 25 markets, it had found mobile tariffs to be 10-20% lower when there are four players.
“This is not a broken market,” she wrote, pointing out that EE, Vodafone, Three and O2 generated a combined £15bn of revenue in 2015 – while “investing billions” in 4G deployment and maintaining cash flow margins above 12%.
“Competition, not consolidation, has driven investment,” she wrote, echoing the words of competition commissioner Margrethe Vestager, who has been wary of telecoms mergers since taking on her role.
White outlined her three main concerns as being higher prices for consumers and businesses; disruption to the existing network sharing agreements – between Three and EE, and O2 and Vodafone – which enable continued competition on the retail level; and the impact on independent phone retailers, which “help constrain the price of mobile handsets and bills”.
Acknowledging that many of Ofcom’s concerns related to competition among network owners, White said: “Only these four companies can make your mobile signal faster, more reliable and widely available.” On the subject of establishing a new mobile network – a topic of reported interest to Iliad founder Xavier Niel – “might be one answer, but this would take time, and considerable investment.”