UK tells EU to block three-O2 deal ahead of Brexit vote

Bloomberg

Britain’s antitrust watchdog urged the European Union to block CK Hutchison Holdings Ltd.’s plan to create the country’s biggest mobile phone operator, wading into a row two months ahead of a U.K. vote on its future in Europe.
The U.K. Competition and Markets Authority, which failed to wrest the deal review from the European Commission, said that what Hutchison has offered so far to allay EU regulators “falls short” of what’s needed to avoid long-term damage to mobile-phone markets. The CMA commented in a letter to the EU’s antitrust commissioner on its website on Monday.
Only a sale of “mobile network infrastructure and sufficient spectrum to ensure a commercially viable fourth” mobile network operator in the U.K. would be an appropriate remedy, CMA head Alex Chisholm said. “Absent such structural remedies, the only option available” to the EC “is prohibition.”
While EU regulators have overruled national authorities on similar deals, U.K. opposition comes ahead of a June 23 referendum on whether the country should leave the EU. Hutchison’s bid to merge its U.K. Three unit with Telefonica SA’s O2 has already attracted the ire of Britain’s telecoms regulator, which warned of higher prices and less choice.

Take Control
“If the commission does go against the CMA on this, it will be taken” by campaigners for U.K. to quit the EU as another reason “to leave and take back control,” said Raoul Ruparel, co-director at the Open Europe think tank. The CMA may be trying to show “that disagreeing with it now is much more costly.”
Hutchison has tried to counter opposition from the U.K.’s telecoms regulator, vowing not to raise prices for five years if the deal goes through. It is also pledging to invest £5 billion to strengthen network coverage, reliability and data speeds.
The concessions currently on the table “fall short of what would be required” to remedy competition problems caused by merging two of the U.K.’s four mobile-phone businesses, Chisholm said. They also fail to address U.K. regulators’ concerns that the merged firm will have network sharing arrangements with Vodafone Group Plc and BT Group Plc.

Time ‘Running Out’
“Hutchison now appears to be running out of time to negotiate a solution and so the commission has little choice but to prohibit it,” said Nick Woodrow, Vodafone’s head of competition. Hutchison’s existing concessions “are likely to lead to protracted litigation which could dog the U.K. market for years” because they don’t resolve network issues.
Vodafone argues that that the deal will reduce the number of mobile network operators from four in a market that it says needs at least three operators. Vodafone currently shares the Beacon network with O2 and competes with the bigger BT network shared with Three.
The EU has weathered battles from regulators in Germany, Austria and Ireland over previous telecoms deals when it refused to allow national authorities rule on tie-ups between operators. It’s also been criticized for allowing deals that reduce the number of phone firms even with attempts to boost smaller “virtual” operators.
A decision on the deal will be made solely by the EU, which has a May 19 deadline to rule on it. Merger officials are increasingly wary of big deals that reduce the number of mobile-phone network operators.