O2 and Three braced for tough merger conditions from Brussels - Telegraph
European officials expected to lay down tough rules this week before allowing proposed £10.25bn deal go ahead

Three’s attempted takeover of rival mobile operator O2 will face a major hurdle from Brussels this week as policymakers are expected to attach prohibitive concessions to the proposed £10.25bn deal.

European competition officials are investigating plans by CK Hutchison, the Hong-Kong-based owner of Three, to buy O2 from its Spanish owner Telefonica, with a decision due in March.

But the European Commission is expected to demand harsh concessions in preliminary findings due this week, following three months of deliberation.

Three, which commands 11pc of the UK mobile market, could be told to sell off network capacity to rival firms before it can buy O2, as the EC attempts to row back on mobile companies consolidating.

The deal has proven more contentious than BT’s £12.5bn unconditional takeover of EE, approved on Friday by the Competition and Markets Authority.

<Pie Chart showing UK mobile market share>

Unlike the BT-EE deal, where a fixed-line broadband company will merge with a mobile operator, Three and O2’s union would reduce the number of mobile network operators from four to three. Requests by Britain’s competition watchdog to consider the merger were rejected by Brussels.

Instead European Commissioner Margrethe Vestager, in charge of competition regulation, launched an investigation in October. She was in talks with Sharon White, chief executive of telecoms regulator Ofcom last week, according to sources.

Ms Vestager, who has said it is necessary to have at least four mobile network operators in each country, said: “We want to ensure that consumers in the UK do not pay higher prices or face less choice as a result of this proposed takeover.”

Matthew Howett, a telecoms analyst at Ovum, said it is likely that Three will be told to hand back some of its UK mobile network capacity or “spectrum”.

This is a finite resource shared between the mobile operators. Three owns 12pc of 4G spectrum, for example, and O2 15pc.

A similar deal in Denmark was derailed after operators Telenor and TeliaSonera were told to sell off as much as 40pc of their network infrastructure.

A merged Three-O2 could also be forced to create a spin-off “challenger” company, in a bid to retain competition.

But Bengt Nordstrom, chief executive of market research company Northstream, predicted the deal would not be approved at all.

He said: “The new commissioner [Ms Vestager] has a negative attitude towards mergers and, after blocking the Danish deal last year, I find it hard to believe they will approve this bid.”

CK Hutchison is “prepared for anything” to make the deal happen, according to Mr Howett: “They are serious about the transaction and are confident this will happen. They can’t backtrack on that position.”