UK: OFT Seeks Referral Of UK Aspects Of Orange UK And T-Mobile UK Merger From The European Commission

Last Updated: 9 February 2010
Article by SJ Berwin's EU & Competition Team

The Office of Fair Trading ("OFT") has requested that the European Commission refer to it the UK aspects of the proposed merger between Orange UK and T-Mobile UK for investigation under the Enterprise Act 2002.

The proposed transaction consists of a 50/50 joint venture encompassing the mobile businesses of Deutsche Telekom's T-Mobile UK and France Telecom's Orange UK as well as the fixed broadband business of Orange UK. The transaction was notified to the European Commission under the EU Merger Regulation on 11 January 2010.

Following a consultation, the OFT's initial view is that the joint venture threatens significantly to affect competition in mobile telecommunications in the UK and has consequently requested that the merger be referred to it for review. If the request is granted, the OFT will examine the proposed joint venture under the UK merger rules with a view to deciding whether it should be sent to the Competition Commission for an in-depth investigation.

If the merger proceeds, it is understood that the combined group would have a 37% market share of retail customers in the UK, and that the number of mobile phone operators in the country would be reduced from five to four. Consumer organisations have campaigned for the OFT to scrutinise the proposed tie-up, rather than the European Commission, due to concerns of reduced competition in the British mobile market. The deal may also give rise to concerns regarding the amount of radio spectrum that the combined operator would control. The merged company would hold 84% of 1800 MHz radio spectrum, which is suitable for next generation wireless technology and a key component in the Digital Britain initiative (to allow broadband connections to the whole country). The 1800MHz spectrum band is currently used for 2G voice calls, but in the future will be freed up to be used for 3G data.

The EC will, as a general rule, inform the OFT and the notifying parties of its decision as to whether to refer the merger within 35 working days from its formal notification, which means that a decision will be due by 1 March 2010.

It is relatively rare for the OFT to make a referral request to the Commission - since 2004, the OFT has made only four such requests to take over an EU merger case, with one request later being withdrawn.

Competition Commission reviews its conflicts of interest rules

On 29 January 2010, the Competition Commission ("CC") announced that it has asked an independent panel to review its current rules and practices in relation to possible conflicts of interest of its members. The panel will be chaired by Dr Brian Woods-Scawen, along with Dame Barbara Mills and Professor Sir Francis Jacobs.

The panel has been asked to conduct a rigorous examination of the current rules and procedures for dealing with conflicts of interest on the appointment of members to the CC and specific inquiry groups as well as during the course of inquiries in which they are involved. The panel has also been asked to look into the CC's practice on disclosure of interests. The panel is to prepare a report setting out its findings and recommendations for change.

The announcement comes in the wake of the Competition Appeal Tribunal's ("CAT") judgment in BAA - in which it upheld an appeal against the CC's final report into the BAA market investigation. BAA claimed that there was 'apparent bias' due to a potential conflict of interest (owing to the links between an inquiry member and an undertaking interested in acquiring certain BAA airports identified for divestment). The CC said that the judgment had been a sharp reminder that even when there is no suggestion of actual bias in the composition or actions of its decision-making panels, a perception of apparent bias can be enough to taint a decision.

More recently, the CC has changed the Chairman of the inquiry group for the local bus services market investigation due to his involvement in an earlier bus merger (currently on appeal to the CAT). Although the CC considered that the Chairman would have been able to discharge his duties impartially, it recognised that parties must have confidence in the fairness of it investigations and appointed a new Chairman on a cautious basis.

The CC has reiterated that it is absolutely committed to fair process and that it is determined that its procedures should not only be fair but should also be seen to be fair.

Ofgem suspends its existing merger policy for energy network companies pending review

On 2 February, the Office of Gas and Electricity Markets ("Ofgem") published its decision to suspend its existing merger policy for mergers between energy network companies pending a review. Ofgem has confirmed that any mergers occurring within the review period will be reviewed on a case by case basis.

In December last year, Ofgem published a consultation letter stating that it was considering suspending its existing merger review policy primarily due to the changes in the ownership structure of the energy networks over recent years (see Community Week issue 451 (http://www.sjberwin.com/publicationDetails.aspx?mid=1&rid=1&ast=4&pgGp=6&pgIdx=0&adv=1&cid=2675)). Ofgem is particularly concerned that its merger policy does not adequately deal with the fact that there is now a smaller number of independent groupings in the electricity distribution sector.

Ofgem has considered the responses to the consultation and although some concerns have been raised, Ofgem has decided to proceed with the review to ensure that its policy remains "fit for purpose".

Ofgem understands there needs to be certainty over the treatment of potential mergers and therefore aims to conclude its review as "quickly as practicable" - it plans to consult on its new policy in spring 2010 and publish its revised policy in the summer.

The types of issues that Ofgem will consider in determining its case by case approach include:

  • Is there a loss in the number of independent contractors in the sector? If so, what is the likely impact of this on the results of any comparative efficiency analysis in the sector?
  • Does the merger significantly change the distribution of market share within the network sector? If so, does this raise any relevant issues?
  • Does the merger result in an entity owning both distribution and transmission licences within either the gas or the electricity industry? If so, does this raise any relevant issues?
  • Does the merger result in an entity owning both gas and electricity network licences? If so, does this raise any relevant issues?

Ofgem has advised that any parties considering merger transactions during the policy review period should consider whether the proposed transaction raises issues under these headings.

In the event of merger activity in the UK energy market, Ofgem's role is to advise the OFT prior to the OFT's decision as to whether to refer a case to the Competition Commission. Ofgem may also be required to advise the European Commission if a merger would have an impact on the European energy market.

To read Community Weekly Issue 457, dated 5 February 2010 in full please click here (http://www.sjberwin.com/publicationDetails.aspx?)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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