Mobile phone customers could pay more after Three’s takeover of O2, Ofcom warns

The combined mobile giant would run almost half of the market, which could lead to higher prices but no extra investment for customers 

 

Three’s bid to buy mobile rival O2 could be shot down by regulators, as Ofcom’s chief warned that the deal could lead to higher prices for customers but is unlikely to have any positive impact on investment in the communications network.

Such a merger would create the UK’s biggest mobile network, with more than 40pc of all mobile connections, as well as reducing the number of operators in the industry from four to three.

“The UK could end up with more concentrated markets that lead to higher prices and reduced choice for consumers, without the promised boost to investment and innovation,” said Ofcom boss Sharon White.

Three's bid to take over O2 could be stopped by regulators, or subject to extra conditions in an effort to maintain competition in the market  Photo: AFP

She also said that BT’s planned purchase of mobile operator EE could weaken competition in the market.

European regulators are investigating the Three/O2 deal, and last week Commissioner Margrethe Vestager said that cutting the number of mobile operators in a national market can raise prices for consumers, but fail to improve investment. Britain's Competition and Markets Authority also wants to rule on the deal.
“Mobile operators argue that they need consolidation to boost revenues and increase efficiency,” said Ms White, speaking at the London School of Economics.
“They make the case that profit margins in the UK are too low, and that they need more scale to invest. Consolidation can, in theory, have benefits – improving economies of scale and making it easier to finance investment.
“However, Ofcom's experience is that competition, not consolidation, drives investment and delivers low prices.”

This is an urgent question. Once competition slips away, it is hard to re-establish, especially in telecoms, where barriers to entry for new firms are high"

Ofcom boss Sharon White

Three’s owner, the Hong Kong-based conglomerate Hutchison, has argued that the merger needs to go ahead to create a strong competitor to Vodafone and BT.
Both Three and O2 won a smaller share of the airwaves than they wanted in recent auctions, resulting in O2’s chief, Ronan Dunne, saying that together they would have a fair share.
But Ms White remains to be convinced of the benefits, and is providing evidence to the European Commission to that effect. One reason is that the mobile networks are making very healthy financial returns already, with revenues of £15bn in the UK last year and a cashflow margin of 12pc.
“The crucial test for a regulator like Ofcom is whether prospective mergers promote or harm the interest of consumers,” she said.
The EU's competition Commissioner Margrethe Vestager has a history of taking on technology and communications giants  Photo: AFP
“This is an urgent question. Once competition slips away, it is hard to re-establish, especially in telecoms, where barriers to entry for new firms are high.”
As a result, she said that appropriate remedies need to be pushed on the firms, should the merger be approved.
That could include forcing big networks to allow smaller operators to use some of their spectrum, the so-called “virtual” providers.
Such an arrangement needs to last through new technological developments, she said, including ensuring the big networks do not have a monopoly on 5G capabilities.
Tougher regulation may also be required in a market with shrinking numbers of firms, such as giving authorities the power to take spectrum off dominant players, publishing more data on the price of different deals, or making it easier for customers to switch provider.