European trustbusters have a newfound tendency to brawl. It makes the outcome of Hutchison’s 10.3 billion pound bid for Telefonica’s UK arm O2 harder to call.
EU Competition Commissioner Margrethe Vestager has given her department until April 18 to scrutinise the market impact of the deal, though deadlines for other cases have been extended. And concessions Vestager may require could dilute the logic of a deal predicated partly on the assumption that the UK needs a third competitor in network infrastructure to challenge Vodafone and EE.
It would be odd to push the bidder to surrender spectrum: rivals have more. Together, O2 and Three (Hutchison’s brand) would only have 108 MHz of spectrum, less than Vodafone’s 113 MHz or the total 150 MHz of a combined BT/EE, Citi research shows. That said, BT may have to give up some airwaves capacity to buy EE.
Vestager, though, seems to care more about the direct impact on consumers. So to gain approval, Hutchison may have to create an additional mobile network operator to ensure there is four-way competition in the UK market. That’s what happened in Denmark, where Vestager effectively forced TeliaSonera and Telenor to withdraw in September from a merger that would have shrunk the market from four players to three.
There may still be a way to keep everyone on the line. Perhaps Hutchison can grant the two likely alternative operators – TalkTalk and Sky – access to the combined group’s network, and thus effectively create a fourth player without a full-blown spectrum sale. That might still hit the value creation of an O2/Three tie-up. And sharing agreements may sometimes distort competition: a point France’s Bouygues Telecom might argue. According to newspaper Les Echos, it is claiming 2.3 billion euros from the French government for allowing rival Iliad to piggyback on Orange’s network.
It’s not just in telecoms that Vestager’s approach seems combative. U.S. chipmaker Qualcomm was charged with abusing its market power on Dec. 8 after a months-long investigation. With O2/Three, workable remedies may be found, as in the consolidation of Germany’s telecoms market. But there’s at least an outside chance Hutchison’s may find that Brussels’ demands sap too much.