European regulator blocks CK Hutchison Holdings' $15.3-bn acquisition of O2 UK

The European antitrust regulator yesterday blocked CK Hutchison Holdings' $15.3-billion acquisition of O2 UK from Spain's Telefonica saying that the takeover would have removed an important competitor, leaving only two mobile network operators.

In March 2015, Spanish telecom giant Telefonica agreed to sell its British mobile unit O2 to Hong Kong billionaire Li-Ka Shing's Hutchison Whampoa for £10.25 billion ($15.3 billion) in a deal that would create Britain's biggest mobile operator. (See: Telefonica seals deal to sell British mobile unit O2 to Hutchison for $15.3 bn)

The deal would have seen the merger of Britain's second-largest wireless provider O2 with Hutchison's existing British carrier, Three UK, and become the largest mobile operator in the country with nearly 33 million customers.

The merged company would have held a 41-per cent market share and dethroned current leader EE, which holds a 29 per cent of the 83 million mobile customers in the UK.

Since there are currently four mobile network operators in the UK – BT's mobile business EE, Telefónica's O2, Vodafone and Hutchison's Three, the EC 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. 

The European Commission (EC) said allowing the merger would have led to higher British mobile prices, as it left just two rival network operators - BT Group's newly acquired EE, and Vodafone.

The EC had strong concerns that UK mobile customers would have had less choice and paid higher prices as a result of the takeover, which would have harmed innovation in the mobile sector.

It said that the takeover could eliminate competition between Three and O2. The merged company would have been the market leader with a share of more than 40 per cent and have had much less incentive to compete with Vodafone and EE.

''The transaction would have fundamentally changed the competitive dynamics regarding the UK's mobile network infrastructure. Today, one network is shared between Three and EE, and another between Vodafone and O2.

The merged entity would have held a stake in both. It would have given a full overview of the network plans of its two biggest competitors. This is not a healthy state of competition - not for the competitors and not for consumers, the EC said in a statement.

The blocking of the merger has come as a big blow to Telefonica, which was keen on selling O2 to cut its debt of €50 billion from its expansion across Europe and Latin America.

Anticipating the rejection, Telefonica had said last month that it would look at other options for O2 UK, including finding another buyer for all or part of the business, a stock market listing, or investing further in the subsidiary.

US cable giant Liberty Global and France's Iliad, the owner of Free Mobile, have already shown interest in buying O2 UK.

Hutchison is now waiting for the EC to rule on the $24.8-billion merger of its Italian subsidiary 3 Italia with Vimpelcom's Wind.