On 11 May 2016, the European Commission blocked Hutchison's proposed acquisition of Telefónica UK ("O2"), despite remedies offered by the parties. The Commission's full decision will be published later this year.
The concentration would have reduced the number of mobile network operators ("MNOs") active in the UK from four to three. After the takeover, Hutchison would have been the largest mobile player in the UK, with a combined market share exceeding 40%. In addition, Hutchison and Telefónica have existing network sharing agreements with Vodafone and BT/EE, respectively. This would grant the combined entity access to both physical network infrastructure operations in the UK. The Commission had serious concerns that the transaction would have:
- significantly reduced the incentive to compete with the two remaining players Vodafone and BT/EE, resulting in reduced choice and quality of service for consumers, as well as higher prices;
- hampered the development of mobile infrastructure, because the combined entity would have had access to the network development plans of its two remaining competitors; and
- reduced the willingness of the network operators to host mobile virtual network operators ("MVNOs").
The Commission dismissed Hutchison's proposed remedy package. Hutchison offered various commitments aimed at strengthening the position of existing and new MVNOs, including granting access to its network capacity. The Commission, however, found that even with the commitments the MVNOs would remain commercially and technically dependent on the combined entity. The other commitments were intended to address the Commission's second and third concerns relating to its ties with Vodafone and BT/EE. However, the Commission considered that the proposed behavioural (i.e. non-structural) commitments would be difficult to implement and monitor effectively, and did not allay the Commission's structural concerns. In addition, the behavioural remedies aimed at granting MVNOs access to future technologies were considered commercially unattractive.
The Commission's approach highlights its continued scrutiny of mobile telecommunication mergers in concentrated markets. Although there is "no magic number" of MNOs to ensure effective competition, the Commission will continue to place high importance on the structural nature of remedies (e.g. full divestment of fixed capacity and/or spectrum) as well as offering concrete assurances to ensure swift and sufficient entry of new competitors. The Commission is also close to finalizing a second-phase investigation into a four-to-three deal between Hutchison and VimpelCom Holdings in Italy, which might face the same fate unless the parties manage to offer a viable remedy package.
This article was published in the Competition Law Newsletter of June 2016. Other articles in this newsletter:
- General Court rejects Trioplast's action for annulment of a Commission notice to pay interest
- General Court confirmed that German law on renewable energy amounts to State aid
- European Commission publishes guidance on the notion of State aid
- District Court of Rotterdam upheld the ACM's unconditional clearance decision in telecoms merger KPN/Reggefiber
- Rotterdam District Court considered "franchise agreements" in breach of competition law in launderette cartel case
- UK High Court held that territorial limits apply to EU cartel damages claims