The proposed merger of mobile phone operators ‘O2’ and ‘Three’ has been blocked by the European Commission after concerns that the merger would have negative consequences on effective competition.
In March last year, Three agreed a deal to pay over £10bn to take over O2 from Spanish company Telefónica. However, due to the size of the companies involved, the approval of the European Commission was required before any plans could go ahead. Before granting approval, the Commission needed to undertake a detailed evaluation on the effect that the proposed merger would have on competition.
Unfortunately for the companies involved, the Commission has now decided to block the merger after carrying out this assessment. The Commission were worried that the merger would increase the price that consumers were paying and also reduce the number of alternative providers, thereby ensuring the higher prices were paid.
Hutchison Whampoa, the company that currently owns Three, did offer to make concessions in order to mitigate any reduction of competition caused by the merger. For example, they offered to freeze prices, commit £5bn to investment in the market and even allow their competitors to use part of their network. However, the Commission felt that these allowances did not go far enough.
The Commission was concerned that, were the merger to go ahead, there would only be three network providers to choose from, the others being Vodafone and BT (which now owns EE). This would mean that there would be very little pressure to keep prices low, as there would be fewer competitors to undercut prices. It would also mean that the newly-merged O2/Three provider would hold over 40% of mobile phone users which would allow them too much control over the market.
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