The European Commission has blocked Telefonica's sale of O2 to CK Hutchison, the owner of Three.
The planned deal was worth £10.3bn, and would have left the UK with just three major mobile phone network operators.
But
Europe's competition commissioner, Margrethe Vestager, said she had
strong concerns about the takeover, ruling that it would reduce customer choice and raise prices.
CK Hutchison said it was considering a legal challenge to the decision.
Concessions not 'sufficient'
"The
goal of EU merger control is to ensure that tie-ups do not weaken
competition at the expense of consumers and businesses," said Ms
Vestager.
"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 decision ruled that concessions
offered by Hong-Kong based Hutchison - including a five year price
freeze and billions of pounds in investments - "were not sufficient to
prevent" the hampering of innovation and network infrastructure
development.
CK Hutchison responded to the decision,
saying the acquisition of O2 from Spain's Telefonica would bring "major
benefits to the UK not only by unlocking £10bn of private sector
investment in the UK's digital infrastructure but also by addressing the
country's coverage issues, enhancing network capacity, speeds and price
competition for consumers".
O2
said the ruling had little impact on their UK operations. "We work in
an industry of constant change and have learnt how to manage that change
better than most," said an O2 spokesperson.
"Regardless of what happens next, we will continue to deliver for our customers as we always have."
Potential global interest
The
commission points out that retail prices in the UK are currently amongst
the lowest in Europe, with the four major network operators also
including Vodafone and BT's Everything Everywhere, known as EE.
These
four operators - who own infrastructure like telecoms masts - have
cooperated to share the costs of developing that infrastructure. And it
is the collapse of these cost-sharing deals that seriously worries the
European commission.
Meanwhile Liberty Global - the owner of
Virgin Media - has said it would not rule out an acquisition of O2 if CK
Hutchison's bid was ultimately unsuccessful.
"It would be
strange if we didn't evaluate that option," chief executive Mike Fries
told analysts on a recent results conference call.
Liberty Global
currently possesses a minimal share of the UK mobile market subsidiary
Virgin, which acts as a so-called "virtual operator." That means it must
pay wholesale prices to access the network operated by BT's EE. Tesco
and Asda operate their own virtual networks in a similar manner.
Liberty
Global recently ended negotiations for a major tie-up with Vodafone
across Europe, settling simply for a Netherlands joint venture.
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