The European Commission has opened an in-depth investigation under the EU Merger Regulation to assess whether the proposed acquisition of Telefónica UK 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.
Commissioner Margrethe Vestager, in charge of competition policy, said: "Mobile telecom services are increasingly important to consumers. Both to keep in touch with family and friends and to access online services. With this investigation we want to ensure that consumers in the UK do not pay higher prices or face less choice as a result of this proposed takeover."
The transaction would combine Telefónica UK with Three UK, a subsidiary of Hutchison, which are respectively the second and the fourth largest mobile network operator (MNO) in the UK. This would create the largest MNO in the UK.
The Commission’s initial market investigation raised the following main concerns:
- 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 Commission will now investigate the transaction in-depth in order to determine whether its competition concerns are confirmed. The Commission will in particular examine questions such as the extent to which the parties are close competitors, the market incentives that would be faced by the merged entity and the potential reaction of its competitors.
The transaction was notified to the Commission on 11 September 2015. The Commission now has 90 working days, until 16 March 2016, to take a decision. The opening of an in-depth investigation does not prejudge the outcome of the investigation.
Three UK is a subsidiary of CK Hutchison Holding, based in Hong Kong. Telefónica UK is a subsidiary of Telefónica S.A, based in Spain. Three UK and Telefónica UK are both MNOs and provide mobile telecommunications services to end consumers in the UK, as well as in related markets such as the wholesale of network access and call origination.
In the United Kingdom, only two other MNOs are present in these markets, namely Vodafone and EE (EE is also currently in the process of being acquired by the BT Group). In addition to these four MNOs, there are a number of MVNOs currently active in the market, the most important of which is Tesco Mobile UK, a joint venture between the retail supermarket chain Tesco and Telefónica UK.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The vast majority of notified mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
In addition to the current transaction, there are 6 other on-going phase II merger investigations.
- the proposed acquisition of UK beverage can manufacturer Rexam by the US-Ball Corporation, with a provisional decision deadline of 23 December 2015
- the proposed acquisition of the package delivery provider TNT Express by FedEx with a provisional decision deadline of 13 January 2016
- the proposed acquisition of parts of Walki's industrial packaging division by Mondi with a provisional decision deadline of 18 January 2016
- the proposed acquisition of office supplies distributor Office Depot by its competitor Staples, with a provisional decision deadline of 10 February 2016
- the proposed acquisition of BASE Belgium by Liberty Global, with a provisional decision deadline of 3 March 2016
- the proposed acquisition of the Greek gas transmission system operator DESFA by the Azeri state oil company SOCAR