Author(s): Kester Mann
This week, CK Hutchison is meeting with the European Commission to put forward its case that its Three network should be permitted to buy O2 in the UK. Following the commission's publication of a statement of objections last month, the conversation is likely to be tense. The deal rests on a knife-edge and these discussions could prove pivotal to its chances of success.
I recently quizzed Three's CEO in the UK, Dave Dyson, about a range of topics, from the current competitive landscape in the UK to the remedies that may need to be put in place to allow the deal to go ahead.
A major motivation for Three to buy O2 is its current lack of scale. Despite bringing numerous disruptions to the UK market — such as free roaming and inclusive 4G access — its share of subscribers still hovers around 10 percent.
One of Three's main challenges is its weak spectrum holding. This has become more and more significant as data usage in the UK continues to soar. At some point, certain tariffs become uneconomical — a fact underlined by the operator's recent decision to move customers on an all-you-can-eat data plan into a higher price bracket. Three has clearly retrenched from its traditional maverick role in recent years.
But this forms the crux of one of Three's main arguments. Even after a merger with O2, the combined company would still own less spectrum than either Vodafone or the combined BT and EE — hardly an anticompetitive situation, argues Mr Dyson. In his view, merging the two companies would create a new player able to offer greater network capacity and speed that will better serve UK consumers.
However, CK Hutchison has its work cut out if it is to allay the Commission's concerns. The company has already made a number of pledges about pricing, investment and shared network ownership, but alone they're unlikely to pass muster.
The remedy most likely to appease Brussels would be the creation of a new fourth network operator. Three would need to assess carefully the impact of this or any other remedies. The European Commission's hard line was the main reason cited for the recent failed merger between Telenor and TeliaSonera in Denmark, when compromises made the move commercially unviable.
Three should brace itself for a long and intense period of negotiation with the commission and other interested parties.