Iliad founder Xavier Niel is reported to be exploring the possibility of entering the UK through the remedies package Three and O2 may be required to offer to win European Commission approval for their planned merger. Challenger Iliad, which drove down mobile prices in France through aggressive discounting, has signalled a “preliminary” interest in entering the UK mobile market to regulator Ofcom, according to people familiar with the situation cited by the Financial Times.
Iliad (EPA:ILD) founder Xavier Niel is reported to be exploring the possibility of entering the UK through the remedies package Three and O2 may be required to offer to win European Commission approval for their planned merger.
Challenger Iliad, which drove down mobile prices in France through aggressive discounting, has signalled a “preliminary” interest in entering the UK mobile market to regulator Ofcom, according to people familiar with the situation cited by the Financial Times.
Niel would look to take advantage of any infrastructure divestments the combined Three-O2 would have to make to get their deal past Competition Commissioner Margrethe Vestager, who forced TeliaSonera and Telenor to abandon a planned mobile JV in Denmark last September.
The report suggested Iliad’s interest in entering the UK is contingent on acquiring infrastructure, and that they may face competition from the likes of UK broadband players Sky and TalkTalk. Three’s parent CK Hutchison (SEHK:0013) will have to consider whether the benefits of the merger could be cancelled out by the entrance of an aggressive challenger into the market.
Vestager has 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 last 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.”
Niel declined to comment on the report while Ofcom said it does not discuss whether it has or has not held meetings with companies.
The EC began a Phase II review of Hutchison’s £10.3bn (US$15bn) bid to buy O2 from Telefónica (MAD:TEF) and combine it with its subsidiary Three in late October last year.
An in-depth investigation was expected given the EC’s previous examinations of in-market mobile mergers, and given its aforementioned stance on the prospect of consolidation in Danish mobile.
That deal, like Hutchison’s proposal in the UK, would have seen the mobile market shrink from four players to three, although subsequently Vestager has said there is no “magic number” of MNOs.
Laying out its concerns regarding Three-O2, 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”.
The EC’s provisional deadline to review the transaction by is 22 April. Hutchison and Telefónica have said they expect to close their UK merger in mid-2016, following a binding agreement signed in March 2015.
