Plans to merge the two networks were announced last January in response to the news that BT was to buy EE, the UK’s largest mobile operator. The phone and broadband giant had been in talks with the owners of both EE and O2 before ultimately deciding to pursue EE.
The acquisition of O2 by Hutchison, the owners of Three, was aimed at creating a business which can compete not just with the enlarged BT but also with Sky, which is launching its own mobile service later this year, and Virgin Media which already offers mobile services.
Despite requests for the £10bn deal to be considered by the UK’s Competition and Markets Authority (CMA), EU regulators opted to instead decide whether it could go ahead.
After months of hearings and negotiations EU Competition Commissioner Margarethe Vestager today blocked the merger, claiming that “customers would have had less choice and paid higher prices” if it went ahead.
In addition to potential consumer harm, Vestager said virtual mobile operators which piggy back on the current big four networks would have a “reduced” choice of supplier.
Hutchison and O2 offered a number of concessions aimed at getting the deal approved, including guaranteeing space on its network for virtual operators, but last month the the CMA said these were insufficient to address competition concerns.
Today Vestager backed that stance, saying: “Allowing Hutchison to takeover O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector.
“We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal.
“It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this.”
A spokesperson for Hutchison said it was “deeply disappointed by the Commission’s Decision to prohibit the merger between Three UK and O2 UK.”
They added: “We will study the Commission’s Decision in detail and will be considering our options, including the possibility of a legal challenge.”
An O2 spokesperson said: “We work in an industry of constant change and have learnt how to manage that change better than most.
“Regardless of what happens next, we will continue to deliver for our customers as we always have.”
Today’s decision has been welcomed by TalkTalk boss, Dido Harding, who said: “This is the right outcome for UK mobile customers. We were always clear that going from four mobile networks to three would have meant higher prices and less competition, so it’s reassuring to see competition regulators standing firmly on the side of consumers.
“We have long argued, as the Commission have again this morning, that innovation and improvement in service quality stems from more competition, not less. We hope that the UK regulators will take an equally robust approach to the significant competition issues that have been identified here around the future of Openreach.”