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Monday, March 30, 2015

Hutchison Whampoa Faces Uphill Battle in O2 Deal


After talks that began in January, Hutchison Whampoa on Tuesday announced its agreement to acquire U.K. operator O2, which is owned by Spain-based Telef√≥nica for a total of £10.25 billion (US $15.2 billion). However, significant challenges from European Commission regulators lie ahead for the two companies. One key concern for competition authorities, of course, is the fact that a merger of Hutchison’s 3 UK with O2 would reduce the number of mobile network operators in the U.K. from four to three. Beyond that, the EC will have to consider whether the deal should be scrutinized only within the context of the U.K. market or within that of the EU market as a whole.

Any deal involving a reduction in competition in a given market is likely to face regulatory hurdles; this one is likely to face even higher ones than usual, or at least greater uncertainty. The question of jurisdiction is one reason. Since both Hutchison and Telef√≥nica are multinational companies with operations in many European countries, major changes to their U.K. businesses will have ripple effects elsewhere, as well. The change in the composition of the EC within the past year is another “wild card” in assessing the deal’s chances. While similar mergers in Germany and Ireland were approved in 2014, the makeup of the Commission has changed since then. Additionally, those deals were green-lighted on condition that the operators in question open up spectrum for more MVNOs—a policy that would not constitute a remedy in the case of the U.K. market, in which there are already many MVNOs. And finally, the merger will have to be considered in light of another proposed merger in the U.K. announced within the last few weeks—BT’s agreement to purchase EE from Deutsche Telekom and Orange for £12.5 billion (US $18.6 billion). Unlike the 3–O2 deal, this one would not reduce the number of MNOs in the U.K., since it involves a fixed and broadband provider acquiring a mobile business to create converged services.

The above item appeared in recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues or to speak with the research team: http://www.tarifica.com/contactus.aspx



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