EU blocks Three's £10.25bn takeover of O2

11 May 2016

The European Commission has blocked the owners of Three from buying rival network O2.

Competition commissioner Margrethe Vestager blocked the deal over concerns that mobile customers in the UK would have less choice and pay higher prices if the sale went ahead.

As a result of an investigation into the proposed deal, Vestager also said the deal would harm innovation in the industry. "We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal," she said in a statement. "It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets."

The deal, if it has went ahead, would have involved Hutchison Whampoa, the owner of Three, paying £10.25 billion for O2. There would have only been three mobile companies left in the UK.

Hutchinson Whampoa responded to the Commission's investigation by saying it was "deeply disappointed" and it would consider a legal challenge once it had studied the decision in detail. A statement from the company added that it "strongly believe[s]" the merger would have helped in "addressing the [UK's] coverage issues".

In January 2015, Hutchinson said it would pay £9.25 billion for O2, and an additional £1 billion when the deal had completed. According to The Telegraph cable company Liberty Global, which owns Virgin Media, is also interested in buying O2.

In January of this year the UK's Competition and Markets Authority cleared BT's £12.5 billion acquisition of EE.

But in the case of Three's deal for O2, the Commission said it had three major concerns:

  • Less competition: if the deal went ahead the new company would become the market leader with more than 40 per cent customer share, and as such it would have "less incentive" to compete with Vodafone and EE. Customers would have "reduced choice and quality" of the service to those in the UK
  • Less development: it would be harder to develop 5G technology as the development of mobile networks would be "hampered" by the joint company being able to capitalise on network sharing arrangements.
  • Fewer virtual operators: the merger would have reduced the number of network operators "willing to host other mobile operators [such as Tesco Mobile] on their networks".

Vestager's review dismissed a number of proposed solutions from Hutchinson. The network owner said virtual operators would have been able to use some of the merged company's capacity and also to divest O2's stake in Tesco Mobile. "The proposed remedies would not have been able to prevent the likely negative impact on prices, quality of service and network innovation," the Commission found.