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UPD Three UK Pledges to Retain Low Prices if O2 Merger Gets Approval

Thursday, February 4th, 2016 (11:13 am) - Score 607

The parent of mobile operator Three UK (CK Hutchison Holdings) has moved to counter Ofcom’s concerns about their proposed £10.25bn merger deal with O2 (Telefonica) by making “three clear and simple promises“, which include plans for a £5bn network investment and a pledge not to raise prices for 5 years.

Earlier this week Ofcom’s CEO, Sharon White, made her objections to the deal quite clear and warned that fewer operators would result in less competition, higher prices for consumers and greater complexity in network sharing arrangements (here). Meanwhile others believe that without a merger O2 and Three UK could struggle to compete with BT (EE) and Vodafone, while consumers might also benefit from enhanced network coverage if O2 and Three UK were to join.

The decision itself is ultimately one for the European Commission, which listens very closely to what Ofcom has to say. Never the less some analysts anticipate that the EC may allow the deal, albeit only if the two operators commit to what most would consider as a list of potentially deal-breaking concessions. However Hutchison has previously signalled that it might be willing to bite the bullet and accept the concessions, which has Ofcom worried.

In response Canning Fok, Group Co-Managing Director of CK Hutchison Holdings and Chairman of Three UK, has set out three commitments that are designed to counter Ofcom’s concerns and may also give the EC food for thought.

The Three Promises

* PROMISE NUMBER ONE: Three+O2 will NOT raise the price for consumers of a voice minute, a text or a megabyte in the 5 years following the merger. Every cost efficiency that combining the businesses achieves will be shared with our customers. Like for like, customers’ bills will go down.

* PROMISE NUMBER TWO: Three+O2 will invest £5 Billion in their UK businesses over the next 5 years. That is at least 20% more than would have been invested by the two companies on their own. More importantly, it is much more efficient spending, so quality of service in terms of capacity, coverage, reliability and data speeds will improve much more than if the two companies had not been combined. For those who care to take an objective look, what we’ve done since combining Three with Orange in Austria in 2013 provides empirical proof of this assertion.

* PROMISE NUMBER THREE: Three+O2 will enable other meaningful competitors in the UK market to offer services on a completely level playing field by offering for sale fractional shared ownership interests in our network capacity – in effect selling slices of the same network capacity and quality we use to serve our own customers. This is unprecedented in the UK telecom wholesale market. It eliminates the tricks some wholesalers use to disadvantage their wholesale customers and thus make it harder for them in turn to make competitive offerings to their own customers. This approach will deliver real competition, not just slogans.

In fairness there is a bit of PR fiddle going on here because Three UK and O2 would need to raise their network investment anyway, not least in order to resolve any issues from a re-factoring of their respective network sharing agreements with BT (EE) and Vodafone. As such we don’t see anything too special in no.2, although the first and third commitments are much more convincing.

Canning Fok said:

“Now let me make one thing clear: the combination of Three (the smallest operator in the market) with O2 makes us able to stand up to the new Leviathan BT (in the blunt words of Dido Harding, Chief Executive of TalkTalk, earlier this week), not to mention to the old top-of-the-heap predator Vodafone and is the only way we can guarantee that five years from now customers will still be getting more and paying less for mobile services.

In short, over the next 5 years Three+O2’s customers will be getting more and paying less than they do today for mobile services and the wholesale market will also be better off. Let me emphasize: This is not an aspiration. It is a guarantee. Over the coming weeks the promises I have laid out will be an important part of the case Three will put to Europe’s competition authorities, who have had the wisdom not to rush to judgement until, as the law requires, they have heard our response to their concerns.”

The last line is no doubt a snipe at Ofcom’s CEO and indeed Hutchison has made a crafty move with today’s announcement, which will no doubt give the EC something to think about when they consider what concessions to attach.

However it remains to be seen whether this will be enough to get the job done, especially as the EC’s competition bosses are known for taking a very hard line on such mergers.

UPDATE 3:12pm

The CEO of Vodafone, Vittorio Colao, has naturally rubbished Hutchison’s commitments and described them as being “selectively worded” with no real substance (The Telegraph). “I’m not sure what a ‘price freeze’ means, because as far as investment goes I don’t know how you can commit to this,” added Colao.

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Mark Jackson
By Mark Jackson
Mark is a professional technology writer, IT consultant and computer engineer from Dorset (England), he also founded ISPreview in 1999 and enjoys analysing the latest telecoms and broadband developments. Find me on Twitter, , Facebook and Linkedin.
Leave a Comment
5 Responses
  1. Avatar Gareth says:

    “Three+O2 will NOT raise the price for consumers of a voice minute, a text or a megabyte in the 5 years following the merger”

    Notice they say voice minute, text and megabyte….sounds like they are saying they will not raise the out of bundle prices….they have not mentioned actual package prices and line rental which is really what everybody goes off, most people don’t even use out of bundle minutes now.

  2. Avatar Sean says:

    It’s not like they’ve doubled the price of some existing tariffs just before any potential merger takes place.

  3. Avatar andy says:

    three, a heads-up, you are a lot less trustworthy as a company than you were about 2 weeks ago.

    1. Avatar Tim says:

      Yes. If Three do buy O2 I’m taking my business elsewhere (away from Tesco mobile).

    2. Avatar Mike says:

      As soon as I get fiber in my area I will no longer need unlimited mobile and probably cancel, not like Three really deserves my money any ways…

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