European Commission’s decision to block Three-O2 deal annulled
Rationale for stopping UK telecoms deal in 2016 was based on ‘several errors’, says EU court
A top European court has annulled a 2016 decision by Margrethe Vestager, the EU’s competition commissioner, to block a merger of two British mobile telecoms companies on consumer interest grounds.
The ruling by the General Court, the EU’s second highest court, overturns the European Commission’s decision four years ago to block the £10.25bn takeover of Telefonica’s O2 network in the UK by Three, owned by Hong Kong’s CK Hutchison. It calls into question the commission’s approach to merger interventions.
The court ruled the commission had made “several errors of law” in calculating the potentially harmful effects of the Three-O2 deal, and argued it had not proven that prices would rise or that competition would be harmed as a result.
The annulment represents a fresh blow to Ms Vestager, who is serving a second stint as competition commissioner.
The commission blocked the Three-O2 deal on the grounds it would lead to higher prices and less consumer choice in the UK mobile phone market by reducing the number of networks from four to three. Ms Vestager labelled the aborted deal as “bad for UK consumers and bad for the UK mobile sector”.
A similar merger in Denmark was also abandoned at the time due to regulatory pressure as the tide turned on in-market mobile consolidation which had been allowed in markets including Germany, Austria and Ireland under previous commissioners.
The Three-O2 merger would have created the UK’s largest mobile phone company better able to compete with BT and Vodafone. Instead, as a result of the commission’s decision, both networks remained independent and had to rethink their growth strategies in a highly competitive telecoms market. Telefónica this month agreed to merge O2 with Virgin Media in a £31bn tie-up.
CK Hutchison, which had sought to ease competition concerns, challenged the commission’s argument for blocking the mergers. The company said in a statement that the European Commission had blocked its takeover of O2 due to the “misconceived default view” that European markets need four mobile networks to ensure competition.
“The commission’s approach has unfortunately acted as a brake on, or in a number of cases prevented, network improvements and consumer benefits that can be achieved from mobile mergers,” the company said.
Nicholas Levy, a Brussels-based partner at law firm Cleary Gottlieb, said: “This landmark judgment represents a significant setback for Commissioner Vestager. Challenging four-to-three consolidation in the telecommunications sector has been a central feature of merger enforcement under her watch and the judgment will be studied closely to see the extent to which it may allow further consolidation in the sector.”
The Hong Kong-based company’s legal victory could force a rethink of the rules for the scrutiny of future deals by the commission and potentially trigger a new wave of consolidation in the telecoms sector.
A spokeswoman for the commission said: “The commission takes note of the General Court’s decision annulling the commission’s decision of 11 May 2016 prohibiting Hutchison’s proposed acquisition of O2 UK. The commission will carefully analyse the judgment.”
Both parties have two months and 10 days to challenge the court’s decision. Should they decide to do so, the case would move to the European Court of Justice.
Ms Vestager has already encountered setbacks in previous cases. The General Court last September struck down a Brussels order to Apple to pay €30m in back taxes to the Netherlands.