O2 takeover block implies operators need to focus on service
The European Commission is sending a clear message to operators that it is concerned that mergers will lead to too few operators and less competition, thereby harming consumers — and that it will not allow less than four operators in the UK. These are currently EE (BT), O2 (Telefónica), Vodafone and Three (Hutchison). Based on its investigation the Commission had strong concerns that the combination of Three and O2 would have led to a reduction in terms of choice and to higher prices and lower quality services for UK consumers than without the deal.
According to the Commission the objective of EU merger control is to make sure that mergers in the European Union do not weaken competition. In mobile telecoms markets, effective competition ensures fair prices, quality networks and spurs innovation.
The Commission views the takeover of O2 by Hutchison differently from previous transactions in other Member States (Austria, Denmark, Ireland and Germany) that involved a reduction in the number of mobile network operators from four to three. In particular, the merged entity would have had network sharing agreements with both remaining network operators, EE and Vodafone. Consequently, the proposed takeover would have impacted on the entire UK mobile infrastructure. The disruption of the current network sharing arrangements in the UK would have hampered the future development of mobile infrastructure, for example with respect to the roll-out of next generation technology such as 5G, to the detriment of consumers and businesses.
Operators need to compete
Now that the Commission has made it clear that it is not in favour of any further mergers in the UK mobile space, operators will now need to focus on quality of service and innovation. As LTE-Advanced rolls out and 5G begins to emerge there is ample opportunity for operators to compete on innovative services. Another possibility will be to move beyond national boundaries and expand into the single market. The Commission sees the creation of a truly integrated digital single market as a top priority, so it is possible that operators would see benefits towards moving in this direction.
Jonathan Bell, VP Marketing at OpenCloud commented, “The European Commission has formally blocked the planned merger between Telefonica’s O2 and CK Hutchinson Holdings’ Three, in its bid to ensure long term investment and competition in the marketplace. This decision follows Ofcom’s recommendation to Brussels that the merger could result in higher prices for consumers and business, disruption to the existing UK network arrangement, and a “shift in the balance of power” between operators and independent retailers.”
“Later this summer, we’re expecting a similar decision from Brussels about the proposed merger of Hutchinson’s 3 Italia with VimpelCom Ltd.’s Wind Group in Italy. The European Commission is sending a clear message that such acquisition and market consolidation will not be allowed if it means reducing competition to less than four major players.”
“Instead of relying on acquisitions, operators must work to better service their customers themselves. Consumers can expect to benefit from better network speed and coverage in the short term, but it is difficult to turn these into long-term differentiators. Operators will need to invest in the creation of unique value-added services for their business and consumer subscribers. This is a sustainable route to enhanced customer satisfaction and loyalty, as well as incremental revenue.”
Commissioner Margrethe Vestager, in charge of competition policy, commented: “We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality. The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses.”
“Allowing Hutchison to takeover O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector. We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal. It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this.”
Now that operators are being prevented from creating quasi monopolies, network costs, coverage and innovative services should become priorities. Demonstrating this path, even though Three was latest mobile network operator to have entered the market it has been the driver of competition as the most aggressive and innovative player. Three is generally considered to offer the most competitive prices and was the first mobile network operator to offer 4G at no extra cost. It has also launched popular deals such as free international roaming and was the first UK network to launch a service using the new technology of “voice over LTE”.
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