UK OFT voices concern over Orange T-Mobile merger

The UK’s Office of Fair Trading (OFT) has made a request to the European Commission that it refer the UK aspects of the proposed merger of Orange and T-Mobile to the OFT. France Telecom and Deutsche Telekom announced the plan to merge their UK operations in September 2009.

The OFT said Tuesday that its initial view, following consultation, “is that the joint venture threatens significantly to affect competition in mobile telecommunications in the UK.”

While the merger falls under the jurisdiction of European Union law, the OFT has the right to request that it be allowed to examine the proposal under the UK Enterprise Act of 2002. If its request is granted in this instance, the OFT said that it, “intends to examine the proposed joint venture with a  view to deciding whether it should be referred to the Competition Commission for an in-depth investigation.”

The UK market currently has five operators – with 3UK, Vodafone and O2 the other three — and at least two significant MVNOs; Virgin Mobile and Tesco Mobile. Penetration exceeded 125 per cent at the end of 2009, and it has been argued that the current level of competition is unsustainable. But the OFT may be concerned with network-based competition as well as that based on market position and pricing.

T-Mobile and 3UK have the world’s most advanced active network sharing programme, with a third party organisation — MBNL — established to oversee the network, which in turn uses Swedish Vendor Ericsson as a managed service provider. The merger of the German and French firms’ UK arms would be likely to bring the Orange network into this arrangement, effectively reducing the market to three infrastructure players.

The merger would also create an imbalance in market share. Estimates for December 2009 from Informa Telecoms & Media’s World Cellular Information Service put O2 in first place with 29 per cent of the UK market. But almost nothing separates second to fourth place, with Orange (21.57 per cent), Vodafone (21.5 per cent) and T-Mobile (21.44 per cent) jostling for position. Going by these figures, the newly merged operation would command more than 43 per cent of the market.

The combined operator would also hold almost all of the 1800MHz spectrum assets in the UK. Matthew Key, CEO of Telefónica Europe, parent of O2, recently told “We think some remedies around the 1800 spectrum need to be considered. From our perspective, we’re clear that to have virtually all the 1800 spectrum with one player is not the best situation for the market.”

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