European Commission prepares antitrust probe for O2/Hutchison deal

The European Commission has opened what it's calling “an in-depth investigation” to consider whether the proposed acquisition of Telefónica UK and its O2 operation by Hutchison “would harm competition.”

“The Commission has concerns that the transaction could lead to higher prices, less choice and reduced innovation for customers of mobile telecommunications services in the UK,” says the Commission's euro-statement on the matter.

The Commission has already had a look at the tentatively-scheduled transaction and in so doing found itself worrying about the following three items:

• “First, Telefónica UK and Three UK currently compete against each other in the retail mobile telecommunications market in the UK. The Commission has concerns that the transaction would remove an important competitive force and that the merged entity would have limited incentives to exercise significant competitive pressure on the remaining competitors. This would lead to higher prices and less investment in mobile telecommunications networks. 
• Second, the transaction would reduce the number of MNOs that are effectively willing to host mobile virtual network operators (MVNOs). Prospective and existing MVNOs would have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms. 
• Third, the reduction in the number of competitors following the merger risks leading to a weakening of competitive pressure and increased likelihood that MNOs will coordinate their competitive behaviour and increase prices on a sustainable basis on the retail and wholesale markets.”

The announcement of the probe means the Commission has 90 working days to do a formal assessment of the transaction's possible impact on competition in the UK mobile market.

Your correspondent's antipodean place of residence location makes it hard to offer analysis about the Commission's thinking, but as it happens in 2009 Hutchison's Australian limb decided to merge with Vodafone. That transaction took the number of mobile network operators in Australia from four to three and, not long after the deal, Vodafone's network performance degraded in a series of brown-outs that came to be known as “Vodafail”. Customer service teams were overrun and Vodafone Australia became a byword for poor service.

Vodafail is thought to have cost Vodafone a million customers and the company is still asked if it has left the incidents behind it, and has tried very hard to point out that is the case by making substantial network investments.

The big difference in the two mergers is that Hutchison has promised that O2 will be allowed to go on its merry way, whereas Hutchison's Three brand disappeared entirely in Australia. Even with those differences, Vulture South imagines the European Commission's probe into the deal will do well to consider the Australian experience. ®