Was the European Commission right to block the Three-O2 merger?

The proposed merger would have left the UK with three major operators (Source: Getty)

Jacques Lafitte, chief executive of Avisa Partners in Brussels and a former senior EU Commission official, says Yes.

The Commission was right to block this merger. The decision appears to be based on robust legal and economic grounds. These are tricky decisions. The Commission vetoes on average one merger a year, and this decision is the first veto since Margrethe Vestager’s appointment. She is a no-nonsense Dane from a strong free market liberal political background. The Commission’s analysis must have demonstrated that the merger would have resulted in higher prices, reduced service quality for consumers, and reduced investment in the UK network in the future. Thus, it could not authorise it, especially since the remedies offered by Hutchison and Telefonica were deemed insufficient. This decision nonetheless raises the question of whether the Commission is setting a new standard for “4-to-3” mergers in the telecoms sector, beyond the usual case-by-case approach, integrating the lessons learnt from its recent decisions in Germany and Austria.

Kester Mann, principal operators analyst at CCS Insight, says No.

Having set a precedent in other markets, the European Commission has been either hugely inconsistent in its merger and acquisition policy or failed to foresee the alleged negative impact of the deals it previously waved through. Indeed, arguments that prices have risen in other markets that have undergone similar consolidation are inconclusive. Three will remain a sub-scale mobile operator with only limited resources to challenge larger rivals. Already retrenching from its maverick role, it may further increase prices. Brussels’s change in competition policy could hit hard a European telecommunications sector that had been banking on approval to open the door to further deal-making. While consumers will continue to benefit from greater choice and low prices, concern will heighten over operators’ ability to invest and innovate. This could be crucial as the early pace in 5G development is being set by leading Asian and North American nations. Europe was late to the party in 4G, and should be determined not to be left behind again.

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