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Why, CMA? British regulator calls on EU to block O2-Three merger

The Competitions and Markets Authority has called on Brussels to kibosh the proposed merger of O2 and Three. 

In a letter to Margrethe Vestager, head of the European Commission, the CMA’s chief executive Alex Chisholm outlines concerns that the merger would pose a ‘significant impediment to effective competition’ in the UK markets, arguing that three competing companies instead of four would lead to less competition and therefore higher prices for customers. 

Unless a sufficient chunk of either O2 or Three’s assets were spun out to create a new fourth player, Chisholm argues, the EC should kill the deal stone dead. 

The deal between Spanish firm Telefonica, which owns O2 and Hong Kong-based owners of Three Hutchison Whampoa was first agreed back in January 2015. 

In a bid to allay regulatory fears that competition would be harmed, Three’s suggested that it could sell some of its mobile capacity to Virgin Media, which already uses EE’s network to deliver its Virgin Mobile serivce and Sky, which plans to launch a mobile service using O2’s signal in 2017. 

EE is now owned by broadband and pay TV rivals BT, thanks to multi-billion pound merger that was approved by the CMA earlier this year. Perhaps unsurprisingly, Virgin Media’s CEO Tom Mockridge is less than happy with the CMA’s decision. 

“Less than three months ago the CMA approved the merger of BT/EE, without remedies, despite concerns that this concentrated too much valuable spectrum in the hands of one provider,” Mockridge said. 

“BT/EE now has 45 per cent of total UK spectrum, including 60 per cent of the higher frequency spectrum best-suited to 4G services, particularly in urban areas. In comparison Vodafone has 28 per cent of UK spectrum, O2 has 15 per cent, and Three has 12 per cent. This is the very reason it is now difficult to create a new, fourth mobile network operator.”

During the 2013 4G spectrum auction, EE necked two 35MHz slices of the higher-end 2.6GHz frequency, which is particularly well suited to delivering 4G services in dense urban environments. In the same auction, BT, operating under its Niche Spectrum Ventures moniker, strategically snagged a pair of 15MHz channels in the 2.6GHz band. 

By contrast, O2 and Three didn’t pick up any licenses for the 2.6GHz band, although the latter network already owned slices of the 2.1GHz block. Vodafone is the only other network that picked up a chunk of the 2.6GHz holdings in the frequency flog-off. 

Sky has yet to issue a statement on the CMA’s findings, but given the satellite broadcaster’s previous enthusiasm for the O2-Three merger, it can’t be too happy with this latest development. 

The European Commission is due to announce a decision on the merger by May 19.

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