Ofcom boss again warns Europe against approving O2/3 deal

Despite being told its input is not required, Ofcom has lobbied the European Commission to think twice about approving via a media article from its CEO.

Sharon White (pictured) originally wrote the piece in the FT, which meant it was behind a paywall, but eventually published it on the Ofcom site for everyone to see. In anticipation of an imminent ruling she effectively reiterated her stance from last October, making the standard arguments against consolidation, which come down to a reduction in competition and consist of three main points.

“First, the deal could mean higher prices for consumers and businesses. To date, Three’s owner Hutchison has often acted as a ‘disruptive’ operator, successfully challenging established players through innovation and low prices. Our emerging findings show average prices around 10-20% lower in markets with four operators and a ‘disruptive’ player, versus those with only three established networks.

“Second, the UK’s networks would face disruption. Recently, the four operators have combined their cables and masts into two networks – one used by Three and EE, the other by O2 and Vodafone. The scale economies of sharing networks are already being enjoyed; any merger would threaten that arrangement.

“A third concern lies on the high street. Most phone contracts are still sold in shops, with independents taking a big share. A combined Three/O2 would shift the balance of power between mobile networks and the independent retailers who help constrain the price of mobile handsets and bills.”

The weight of opinion among industry observers seems to be against White, however, with Northstream CEO Bengt Nordstrom wondering how Ofcom can adopt such contrasing positions on this and the BTEE deal.

“Ofcom’s approval of the BT/EE acquisition, but its objections to the O2/Three merger shows that that diverged approach to regulation is being applied to an increasingly converged industry,” he said. “BT/EE is viewed as ‘different’ to O2/Three because of the technology involved. But consumers and the market don’t make the distinction between fixed and mobile. Only regulators still do. In a natural state, there would be two to three converged operators per country (plus a few niche operators) with the scale to compete with each other.”

“By consolidating, operators will be able to benefit from economies of scale and provide a more effective product and efficiencies in research and development,” said Claire Cassar, CEO of Haud.

“Fewer operators could also ensure regulators can control the operator eco-system more effectively which could lead to fewer security breaches and a better overall customer experience.”

“Despite the Three and O2 deal resulting in one less mobile network, there are much wider implications that seem to be missing from Ofcom’s anachronistic warnings around competition,” said Alastair Masson, Client Partner at NTT Data. “The market must be viewed as one ecosystem where the actions of one provider creates a domino effect onto another.

“As more consumers move towards the temptations of triple and quadplay, the size and reach of BT is where concerns over competition should be channeled. The Three and O2 deal, if it goes ahead, is a mere blip on the radar in a market where BT is increasingly ruling the roost across integrated communications and media.”

Generally regulators find it hard to resist poking their nose in when they have the casting vote and Europe will be tempted to veto or attach onerous strings to such a deal. One mitigating factor, however, might be the Orange discussions with Bouygues. While any deal there might fall under the jurisdiction of French regulators, if that were approved it might create additional pressure for Europe to not swim against the prevailing regulatory current.