Update: 12th May 2016 – The European Commission has officially opposed, and therefore blocked, CK Hutchison's attempt to purchase O2 UK from Telefonica. Estimated to be a deal worth £10.3bn, the EC's compteition commissioner has decreed that the deal presented a bad change in mobile networks for the UK market. This is even with Hutchison promising a five year freeze on tariff prices. Read on for our historical coverage of the deal, and what the potential merger would have meant for the UK consumer.
The saga continues with Three’s planned merger with O2. The Competition and Markers Authority (CMA) in the UK has said this week that it has “serious concerns” over the merger, and has made the European Commission aware.
There’s always been a hesitance over this merger of the two operators, particularly since BT acquired EE last year. The O2/Three deal would leave the UK mobile market with just three large operators (the other being Vodafone), a move that Ofcom and the EC are debating would leave it with a lack of competition. This is worrying as there are fears the market might stagnate and potentially set consumer prices high.
Now that the CMA has waded in, things look a tad bleak for CK Hutchison, Three’s parent company. In wanting to combine Three and O2 it would make the entity the UK’s largest operator, but the EC has until 19 May to decide if it will allow the deal to go ahead.
Three still wants to buy O2, but Ofcom's chief executive Helen White isn't happy – so much so, she recently openly expressed her misgivings in The Financial Times' letters page ahead of a preliminary ruling from the European Commission. We look at how the deal, which would make Three the UK's largest mobile network, could affect consumers.
White's main grounds for concern regard competition, which could see consumers forced to pay higher costs as they have in Austria, Germany and Ireland where similar deals have previously taken place.
CK Hutchison responded with some guarantees for consumers, reports The Week. Its co-managing director and Three UK's chairman Canning Fok has guaranteed that customers "will get more and pay less" – Three will freeze call, text and data costs for five years following the merger.
Three's promises to consumers:
• Three will invest £5bn in the combined company over the next five years, which is 20 percent more than what the two companies would have invested on their own
• Three will also offer smaller rivals unprecedented shared ownership interests in its network capacity to ensure effective competition
• Three won't raise the price of calls, texts or data for five years following the merger
• Cost efficiencies will be shared so that "like for like, customers' bills will go down"
The promises may not be exactly what they seem, however, fears Ernest Doku, telecoms expert at uSwitch.com. Doku says: “Even taking Hutchison's three promises into account, there is a real risk this merger could stifle innovation and competition, reduce the incentive for networks to undercut each other, and lead to less innovative propositions.
"We would need to see more detail on its price freeze pledge, as there remains a question on what will happen to monthly contract prices where networks can potentially hide behind the absorbed handset cost. In an ideal world, customers would reap the benefits of both networks. O2 users might get Three’s roaming perks while O2 could boost Three’s customer experience, for example. But this has not been promised and it isn’t an ideal world."
Read our original news story from January 2015 below.
After some speculation, it has been confirmed that mobile operator Three has entered into discussions to buy O2. See: UK's best mobile network 2016.
Following BT's announcement that it will acquire EE, the UK's largest network, it seems more moves in the telecom industry are poised. Telefónica, which owns O2, has confirmed it has entered into an exclusivity agreement worth £10.25bn with Hutchison Whampoa, owner of Three.
That's less than BT's £12.5bn buyout of EE but the firm has more customers and a larger 4G infrastructure. Read: BT seeks to buy EE for £12.5bn: What it means for customers.
"This operation marks another step in Telefónica’s transformation process, initiated by the Company to become a leading digital telco and accelerate sustainable long term growth while maintaining an attractive remuneration policy," said Telefónica.
Despite EE having more customers, the Three/O2 merger makes it the biggest UK network with a market share of 41 percent "The agreement is a win-win for both companies which were looking increasingly vulnerable as pure-play mobile operators in a market rapidly transitioning towards multi-play," said Kester Mann, principal analyst at CCS Insight.
The UK's mobile network market is being shaken up and this will almost certainly signal the end of various ongoing deals such as Three sharing EE's network.
BT was initially eyeing up O2 as a potential deal last year but EE then entered the frame so the firm had the pick of the two. EE might have been a better deal for Three since with an existing network sharing deal in place and the same with BT and O2 but it looks like that wasn't enough to swing it.
Hutchison Whampoa does have history with O2 though, as it purchased O2 Ireland back in 2013. See also: Best SIM-only deals.
One of the big questions is what is happening to competition in the UK telecoms market as if this deal goes through, four out of five successful bidders in the 4G spectrum auction will have merged. Ofcom effectivlely guaranteed Three 4G spectrum in fear of reducing the number of operators.
There are a number of other operators such as Tesco Mobile, GiffGaff, Virgin Mobile and others but they run virtual networks so deals could well change with the BT, EE and Three, O2 acquisitions.