European Commission opens in-depth investigation into Hutchison’s proposed acquisition of O2

The European Commission will investigate in-depth Hutchison’s takeover of Telefónica UK

The European Commission has opened an in-depth investigation under the EU Merger Regulation to assess whether the proposed acquisition of Telefónica UK by Hutchison would harm competition.

The Commission has concerns that the transaction could lead to higher prices, less choice and reduced innovation for customers of mobile telecommunications services in the UK.

Commissioner Margrethe Vestager, in charge of competition policy, said:

“Mobile telecom services are increasingly important to consumers. Both to keep in touch with family and friends and to access online services. 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.”

The transaction would combine Telefónica UK with Three UK, a subsidiary of Hutchison, which are respectively the second and the fourth largest mobile network operator (MNO) in the UK. This would create the largest MNO in the UK.

The Commission’s initial market investigation raised the following main concerns:

  • First, Telefónica UK and Three UK currently compete against each other in the retail mobile telecommunications market in the UK. The Commission has concerns that the transaction would remove an important competitive force and that the merged entity would have limited incentives to exercise significant competitive pressure on the remaining competitors. This would lead to higher prices and less investment in mobile telecommunications networks.
  • Second, the transaction would reduce the number of MNOs that are effectively willing to host mobile virtual network operators (MVNOs). Prospective and existing MVNOs would have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms.
  • Third, the reduction in the number of competitors following the merger risks leading to a weakening of competitive pressure and increased likelihood that MNOs will coordinate their competitive behaviour and increase prices on a sustainable basis on the retail and wholesale markets.

The Commission will now investigate the transaction in-depth in order to determine whether its competition concerns are confirmed. The Commission will in particular examine questions such as the extent to which the parties are close competitors, the market incentives that would be faced by the merged entity and the potential reaction of its competitors.

Hutchison said in a statement:

“The Commission’s decision to open an in-depth investigation was widely expected in the context of the Commission’s previous approach to in-country telecoms mergers. As confirmed in the Commission’s press release, it does not prejudge the final outcome of the Commission’s review.

“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.”

An O2 spokesperson stated:

“We have been engaged in an open and constructive dialogue with the European Commission throughout Phase I of their merger review. Due to the importance of the proposed transaction, we anticipated that the matter would be referred to a Phase II investigation and we welcome the opportunity to continue our discussions with the European Commission.

“The proposed acquisition of O2 by CK Hutchison will be good for both competition and consumers in the UK and we’re confident that the European Commission will also see the benefits.”

The transaction was notified to the Commission on 11 September 2015. The Commission now has 90 working days, until 16 March 2016, to take a decision. The opening of an in-depth investigation does not prejudge the outcome of the investigation.

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