BRUSSELS—Europe’s top antitrust regulator has opened a full-blown investigation into Telefonica SA’s $14 billion sale of British cellphone operator O2, warning that the mobile-telecom merger could lead to higher prices and less choice for U.K. customers.
The move follows a series of warnings from top European Union officials, including the bloc’s antitrust chief Margrethe Vestager, that mobile-phone mergers in already concentrated markets risked harming consumers. Scandinavian telecom operators Telenor ASA and TeliaSonera AB abandoned plans to combine their Danish operations in September after failing to secure approval from EU authorities.
The European Commission, the bloc’s executive arm, said Friday that the sale of O2 to Hong Kong tycoon Li Ka-shing’s CK Hutchison Holdings Ltd. would create the largest mobile-network operator in the U.K., potentially removing an important competitor. O2 is Britain’s second-largest mobile operator, and Hutchison already owns the fourth-largest operator, Three U.K.
“The commission has concerns that the transaction would remove an important competitive force and that the merged entity would have limited incentives to exercise significant competitive pressure on the remaining competitors,” it said.
Britain’s telecom regulator Ofcom also expressed misgivings about the merger, warning in a statement that it could lead to higher prices and reduced customer choice.
“The deal could undermine important aspects of the U.K. market, such as shared networks and high street retail competition, which have helped deliver good results for mobile users over many years,” an Ofcom spokeswoman said. “Once competition is weakened, it is hard to re-establish.”
Ofcom said it had explained its concerns to the European Commission and would continue to engage with its review.
The commission now has until March 16, 2016, to investigate the proposed acquisition and to decide whether to approve it, or ask the companies for concessions to ease its concerns. If it fails to reach an agreement on how to bring the acquisition in line with EU competition rules, the commission can also decide to block the merger.
“With this investigation we want to ensure that consumers in the U.K. don't pay higher prices or face less choice as a result of this proposed takeover,” Ms. Vestager said.
Hutchison said it has had open and constructive discussions with EU regulators, and is “confident that the acquisition will be approved.”
“We believe the transaction will be good for both competition and consumers in the United Kingdom,” the company said.
Telefónica couldn’t immediately be reached for comment.
The merger is the latest in Europe that would reduce the number of mobile-telecom operators in a given country from four to three. A similar merger is in the works in Italy, where Hutchison agreed to merge its 3 Italia business with the Italian operations of Amsterdam-based telecom firm VimpelCom Ltd.
Joaquín Almunia, the EU’s antitrust chief until late last year, cleared several of these four-to-three mergers in Austria, Ireland and Germany. But the first such deal to be reviewed under Ms. Vestager’s watch, in Denmark, was abandoned last month after resistance from Brussels.
Telecom operators have criticized that decision, arguing that the European market is too fragmented, and they should be allowed to merge with rivals in the same country to increase investment in networks and share costs.
However, top commission officials have focused increasingly on the need for competition in EU telecom markets. In an interview with The Wall Street Journal last week, Ms. Vestager said Europe’s telecom market is already “quite consolidated.”
“Relaxing competition rules isn't the answer” to attracting investment in Europe’s telecom networks, the EU’s digital chief Andrus Ansip said earlier in October.