£10bn O2 deal in UK blocked by EU

The EU blocked Hutchison’s bid to create the UK’s biggest mobile carrier, the latest setback to consolidation that telecommunications operators say they need to funnel money into new networks.

Hutchison’s plan to buy Telefonica’s O2 UK mobile-phone business for as much as £10.25 billion (€9bn) and merge it with its Three unit risked raising prices and shrinking choice for customers, the Commission said.

The companies’ pledges to increase investment and freeze prices didn’t do enough to appease antitrust concerns.

“We had strong concerns consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal,” EU Competition Commissioner Margrethe Vestager said.

“It would also have hampered innovation and the development of network infrastructure,” she added.

The EU ban is a blow to tie-ups in the fragmented European mobile industry. The UK is a vibrant market for so-called MVNOs, or mobile virtual network operators.

“If you can’t find a way to clear four to three in the UK, you’re probably not going to be able to find it anywhere else in the EU,” said David Cantor, a Brussels-based lawyer at Telecommunications Law & Strategy.

Hutchison said it was “disappointed” and it is considering a legal challenge among its options. Combining O2 with Hutchison’s unit would have led to higher prices for all operators in the UK, the analysis showed.

The merged firm’s involvement in both of the country’s network-sharing arrangements “would have weakened” BT’s EE and Vodafone, regulators said.

It is the first time the EU has blocked a large mobile merger. The ban may hamper attempts to merge network operators in other countries. Hutchison offered network capacity “to one or two mobile virtual network operators,” the EU said.

The company also suggested selling O2’s stake in a joint venture with Tesco Mobile and striking a wholesale agreement with Virgin Mobile to take some of its network capacity.

The EU, backed by UK antitrust and telecom agencies, didn’t accept the companies’ offers to sell space on their network to MVNOs, saying the concessions didn’t resolve concerns over network sharing.

Telefonica, Spain’s largest phone company, had been relying on the deal to cut its €49.9bn debt load as it strives to maintain its credit rating.