European Commission blocks Hutchison/Telefónica tie-up

In a move that was largely expected the European Commission has prohibited a merger between Hutchison’s Three and Telefónica’s O2 mobile businesses.  EU Commissioner Vestager said that the transaction which would have created the UK’s largest mobile network operator presented “significant competition concerns” and would have led to higher prices, less innovation and fewer choices for consumers.

It be recalled that the CMA urged the Commission to block the merger unless the parties were required to sell off at least one network’s infrastructure and spectrum.  Then CMA Chief Executive Alex Chisholm in a letter to the Commission, though polite in tone, was unequivocal in stating the CMA’s view that absent such remedies “the only option available to the Commission is prohibition”.  The head of Ofcom Sharon White was also opposed to the merger and the regulator has publicly stated its view that the final decision is the right outcome for consumers.

A combination between Three and O2 would have given the merged group an interest in two network sharing arrangements owned respectively by Three and EE and Vodafone and O2.  The Commission did not view this as healthy for competition.

The transaction has bucked the trend of recent EU clearances of mobile mergers where remedies have been found to allay competition concerns.  Examples include Orange/T-Mobile (UK); Orange/Hutchison (Austria); Hutchison/O2 (Ireland); and Telefónica/E-Plus (Germany).  The regulatory reviews of these transactions suggested that in-market mergers would be tolerated provided that the parties would be prepared to offer both structural and behavioural remedies.

A possible remedy might have been the introduction of a fourth mobile operator in one of the network sharing arrangements to replace Three or O2 but Hutchison was not prepared to offer this, or a remedy considered by the Commission to be equally effective.  The merging parties had offered to open their networks to potential mobile virtual network operators (MVNOs) but the Commission did not consider that this was sufficient.

The decision is the first prohibition of a merger by the Commission since it blocked Ryanair’s takeover of Aer Lingus in February 2013.