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EU Court Overturns 2016 Block of O2 and Three UK Merger

Thursday, May 28th, 2020 (1:51 pm) - Score 7,293
internet and uk computer law

The European Court of Justice (General Court) has today annulled a decision by the European Commission’s competition authority, which in 2016 blocked mobile operators O2 and Three UK from merging. The ruling found that the decision to block the £10.45bn deal had failed to prove that such a merger would damage competition.

A merger between Three UK and O2 was always likely to attract a disdainful eye from regulators because it would reduce the number of primary Mobile Network Operators (MNO) in the United Kingdom’s mobile telecoms market from four to three, which is something that Ofcom, the CMA and EU competition authorities all warned could affect competition (i.e. less choice for consumers, damage the MVNO market and higher prices).

At the time Margrethe Vestager, European Commissioner for Competition Policy (she’s still in that job today), agreed (here) and said: “Allowing [Three] 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 … and paid more than without the deal. It would also have hampered innovation and the development of network infrastructure.”

Sometime after that ruling Hutchison (Three UK) began a legal challenge of the decision to block their merger with O2 and today judges in the European Court of Justice (ECJ) have backed their case. In short, the judges found that Vestager had failed to prove the merger would damage competition or that prices would have risen as a result of it.

On top of that the ruling noted that the effects of the operation on prices and on the quality of services for consumers “have not been proved to the requisite legal standard” and that the European competition authority had made “several errors of law and of assessment.” Broadly speaking it’s a point by point destruction of almost all the original arguments.

Statement by CK Hutchison (Three UK)

CK Hutchison welcomes today’s judgment by the General Court of the European Court of Justice upholding the Group’s appeal against and annulling the European Commission’s decision in 2016 to prohibit the merger between Three UK and O2 UK.

In our appeal, we argued that the Commission’s approach to reviewing the proposed merger, and European telecoms mergers more broadly, was guided by a misconceived default view that European telecoms markets are better served by having a minimum of four Mobile Network Operators in each EU Member State.

This approach ignores market realities, the clear evidence of successful market consolidation in Europe and across the world as well as the very significant efficiencies in terms of increased investment, network improvements and consumer benefits that can be achieved from mobile mergers.

The Commission’s approach has unfortunately acted as a brake on, or in a number of cases prevented, vital industry consolidation in Europe which would have resulted in significant new investment, innovation and benefits for European consumers and industry.

Following the Court’s findings, the Commission will need to fundamentally revisit its approach to merger reviews in this key sector.

We will study the General Court’s complex judgment in detail and comment more extensively as appropriate in due course.

The decision will not however trigger O2 (Telefonica) and Three UK to re-start their merger talks. Indeed O2 has moved on and only last week reached a significant agreement to merge with Virgin Media’s (Liberty Global’s) fixed line broadband and TV business in the United Kingdom (here).

The proposed merger with Virgin Media seems likely to be of strong mutual benefit to both sides, albeit while leaving Three UK as the only primary mobile network operator in the market to be without any kind of fixed line solution of its own.

Meanwhile the court has allowed both sides 2 months and 10 days to challenge their decision, although it’s hard to see how the EC’s competition authority could successfully appeal every aspect of such a comprehensive ruling. But assuming today’s decision does hold then it could open the doors to a new wave of major network consolidation deals.

The UK is of course due to leave the EU at the end of this year, although the exact structure of our future relationship remains in the hands of on-going trade negotiations.

UPDATE 3:24pm

Telefonica (O2) has issued the following statement: “Telefónica notes the EU Court’s decision, but the company has moved on. Telefonica recently announced a transaction that combines Virgin Media, the U.K.’s fastest broadband network, and O2, the country’s most reliable and admired mobile operator, into a 50:50 joint venture that will create a powerful fixed-mobile challenger in one of its core markets.”

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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
7 Responses
  1. Avatar joe says:

    Given the ECJ is historically pliant to the EC’s view this is a remarkable judgement.

    On the points at hand the arguments were right in 2016 and have rightly succeeded now – albeit pitifully late. The problem in this an many other areas is the law is no remedy when it takes years to rule and the matter at had is long past being actioned.

  2. Avatar Guy Cashmore says:

    The UK has already left the EU at the beginning of 2020, the transition period is due to end later this year, staying ‘in’ isn’t an option any longer.

  3. Avatar John Trodd says:

    O2, the country’s most reliable and admired mobile operator. Virgin Media, the U.K.’s fastest broadband network. Hahahaha your killing me. O2 reliable not if Ericsson help you and virgin media not that fast if you left the cabinet doors open for vandals. Can wait too see how bad it gets for both of them good luck

    1. Avatar -- says:

      You’re aware the doors aren’t left open intentionally, right? And there’s this super duper handy number to ring on the inside with a Cabinet number so that they can come and close/repair them.
      I know, I know, who would’ve thought it could be so easy?

    2. Avatar graham says:

      “Hahahaha your killing me”

      You’re killing the English language, so your suffering is a favour to humanity.

  4. Avatar Bill says:

    Can 3 sue the regulator for lost opportunity and potential gains?

    It sets a precedent that a regulator can make a decision to scupper someone’s plans – even if their decision is entirely erroneous.

    1. Avatar joe says:

      Good luck with that…

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