The General Court of the European Court of Justice has annulled a decision made in 2016 to block the merger between O2 and Three in the UK, potentially opening the door for consolidation.
In 2016, Europe decided it was better for sustainable competition that the four operators in the UK remain independent, blocking the mega-merger between O2 and Three. This decision has set market precedent over the subsequent period, with the generally accepted rule that bureaucrats would not allow less than four independent mobile network operators in a single market. This ruling turns that presumption on its head.
“In our appeal, we argued that the Commission’s approach to reviewing the proposed merger, and European telecoms mergers more broadly, was guided by a misconceived default view that European telecoms markets are better served by having a minimum of four Mobile Network Operators in each EU Member State,” CK Hutchison, Three UK’s parent company, said in a statement.
“This approach ignores market realities, the clear evidence of successful market consolidation in Europe and across the world as well as the very significant efficiencies in terms of increased investment, network improvements and consumer benefits that can be achieved from mobile mergers.”
As soon as the decision from Europe was made to block the merger between Three and O2 was made, the agreement between the two parties was terminated. It will now always be a case of what could have been, as this decision will not reignite talks between the two parties.
“Telefónica notes the EU Court’s decision, but the company has moved on,” a Telefónica spokesperson said. “Telefónica recently announced a transaction that combines Virgin Media, the UK’s fastest broadband network, and O2, the country’s most reliable and admired mobile operator, into a 50:50 joint venture that will create a powerful fixed-mobile challenger in one of its core markets.”
As there will be no material impact on the proposed merger between Virgin Media and O2, which was announced in recent weeks, questions will now turn to more general market consolidation in Europe
Europe has always been against market consolidation if the result leads to less than four independent service providers in the mobile segment. If concessions are offered, like in the Netherlands for example, mergers would be allowed but this would result in a diluted version of what the merging parties would have wanted to achieve.
The ruling from the General Court changes everything.
In 2016, the European Commission considered the reduction from four to three service providers would have resulted in increased prices, decreased quality of service, hindered investment in infrastructure and would have had a detrimental impact on the MVNO segment also.
The ruling which has been made public today disputes the claim there would be negative impacts on competition. Negative experiences for the consumer has not been seen in other markets around the world where there has been consolidation, while there were several flaws during the assessment process. The original assessment also failed to demonstrate effectively that network infrastructure would be impacted also.
With the General Court annulling the decision to block the merger, it is effectively saying Europe would consider market consolidation should there be a good business case. This is a very interesting ruling and statement to make, as it is effectively a green flag to the industry. Could this spur the market’s imagination for consolidation?