Doubt cast on O2/Three merger

<p>Four operators is a ‘competitive number’ says Ofcom chief. </p>

UK telecoms regulator Ofcom has cast doubt on the proposed £10.2 billion merger of O2 and Three.

During a speech in London on Wednesday night (October 7th), Ofcom chief executive Sharon White said that "four operators is a competitive number," – however the merger would reduce the number of UK mobile networks to three.

She noted that mobile operators had implied that the UK market was too competitive and that profit margins were too low. The companies could benefit from consolidation, but she indicated that competition would provide more benefits.

"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," she said, adding that having four UK networks had delivered "good results for consumers and sustainable returns for companies".

Competition risk

If the Three/O2 merger went through, Ms White explained the resulting company would have more than a 40 per cent market share and could be problematic for the Three, which she called the "competitive new entrant".

Last week, the Competition and Markets Authority (CMA) said that the proposed merger threatened competition. The CMA has asked the European Commission for the right to investigate the deal and argued that there were "clear links" between this deal and BT's desire to buy EE.

The European Commission will have until October 30th to decide whether to allow the CMA to investigate. Normally, the EC would look into these issues, but the CMA says the deal mostly affects UK consumers.

According to Ms White, this is a crucial period for the telecoms market, and she warned that the trend for mergers could put competition at risk.

"The scale of change in the next 12 months and beyond could dwarf what we have seen over the last ten years. If the current merger wave continues, there are risks to consumers and businesses who have enjoyed one of the most competitive markets of recent years."

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