The European Commission has earlier cleared several 4-to-3
mergers in the mobile telecommunications sector. But as illustrated
by the European Commission's recent refusal to clear the
proposed acquisition of mobile network operator O2 by Hutchison,
4-to-3 mergers generally give rise to competition concerns. O2 is
the second largest mobile operator in terms of revenue in the UK,
and the largest in terms of number of subscribers. Hutchison's
Three is a recent entrant on the UK market and is considered one of
the most important drivers of competition. According to the
Commission, the proposed acquisition would have resulted in less
choice and higher prices for UK mobile customers. In the absence of
an effective remedy, the European Commission blocked the
acquisition: its 25th prohibition in 25 years. Companies
should therefore be aware that 4-to-3 mergers are not impossible
but need careful scrutiny and, possibly, remedies.
The UK mobile telecoms market currently has four mobile network
operators: Vodafone, BT's mobile business EE,
Telefónica's O2, and Hutchison's Three. The European
Commission had the following three main concerns with regard to Hutchison's planned
acquisition of O2:
Elimination of competition
between O2 and Three – according to the Commission,
Three is the most aggressive and innovative player in the market,
and O2 has a strong position with high brand value and reputation.
Combined, Three and O2 would have had a market share of more than
40%. This limitation of competition would have led to higher prices
and reduced choice and quality for consumers.
Change in the UK's mobile
network infrastructure – the merged entity O2/Three
would have been part of two network sharing agreements. Network
sharing agreements allow mobile network operators to share the
costs of rolling out their networks while continually competing
with each other for retail customers. EE and Three have combined
their networks as MBNL, whereas Vodafone and O2 have combined their
networks to set up Beacon. The merged entity would thus have had a
full overview of the network plans of its two biggest
Reduced number of hosting mobile
network operators – the transaction would have reduced
the number of mobile network operators willing to host other mobile
operators on their networks. These mobile virtual network operators
rely on access to the infrastructure to provide mobile services to
The Commission has previously approved several 4-to-3 mobile mergers in other
member states, such as Austria, Denmark, Ireland and Germany. The
difference with these approved mergers seems to be that the merged
entity O2/Three would have had network sharing agreements with both
remaining operators. As a result, the Commission concluded that the
proposed transaction would have impacted the entire UK mobile
The Commission indicated that the creation of a fourth mobile
network operator to replace either Three or O2 in one of the
network sharing agreements would have been an effective remedy to
resolve its competition concerns. Hutchison did offer a number of
behavioural remedies, but these were rejected for not adequately
addressing all of the competition concerns. The proposed
acquisition was therefore blocked by the Commission.
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