Hutchison’s O2 Bid Faces In-Depth EU Probe on Pricing Worry

  • Deal could reduce choice, innovation in retail market, EU says
  • Virtual operators will be in weaker position to access network

European Union merger regulators started an in-depth probe of CK Hutchison Holdings Ltd.’s takeover bid for Telefonica SA’s O2 unit in the U.K. just days after British watchdogs boosted BT Group Plc’s plans to return to the mobile market.

With Vodafone Group Plc and EE Ltd. as the only other fully-fledged carriers left in the market, the deal could lead to higher prices, less choice and reduced innovation, the European Commission said Friday in a statement. EU regulators set a March 16 deadline to complete their review.

“With this investigation we want to ensure that consumers in the U.K. do not pay higher prices or face less choice,” EU Competition Commissioner Margrethe Vestager said.

Li Ka-shing’s Hutchison agreed to acquire the O2 unit in March, a deal that would create the U.K. wireless provider with the most customers. Hutchison has been on a buying spree throughout Europe, with acquisitions in Ireland and Austria which add to its businesses in Italy, Sweden and Denmark.

The Three-O2 deal may face a rougher ride from EU regulators than BT’s takeover of Deutsche Telekom AG and Orange SA’s EE faced at the hands of the U.K.’s Competition and Markets Authority, said Becket McGrath, a lawyer at Cooley LLP in London. The CMA gave provisional approval to the EE tie up Wednesday.

‘More Difficult’

"It’s going to be much more difficult taking the market from four to three," McGrath said ahead of the EU’s announcement. "Particularly because of the role of Three, where it’s been an innovator on pricing issues and a maverick."

The U.K. regulator has asked the EU for jurisdiction over the O2-Three review because the deal’s impact would be most felt by British customers.

The merger could hamper investment and lead to higher prices as O2-Three would have limited incentives to exercise significant competitive pressure on Vodafone and EE in the U.K. retail market, according to the commission.

Hutchison said in a statement that it’s “confident” the acquisition will be approved. The firm said “the transaction will be good for both competition and consumers.” Telefonica representatives didn’t immediately respond to requests for comment.

The Three-O2 deal is the latest in a long line of mobile-phone deals to face close scrutiny from EU regulators who are grappling with a desire among carriers for consolidation in an industry that’s still a collection of national markets usually dominated by a handful of local operators.

Scrapped Deal

TeliaSonera AB and Telenor ASA were forced to scrap last month the merger of their Danish businesses amid EU opposition of a deal that would have reduced the number of competitors from four to three. The European Commission is also taking a close look at plans by Liberty Global Plc’s Telenet unit to buy Royal KPN NV’s Belgian mobile-phone business.

Merging phone companies can’t rely on arguing that benefits from greater investment will trump the effects of removing a competitor from the market when they seek antitrust approval for deals, Vestager said earlier this month.

Hutchison pledged to offer Liberty Global Plc and Dixons Carphone Plc access to its network to secure EU approval last year for its Irish purchase.

In the U.K. market, the largest virtual operator is is Tesco Mobile, a joint venture between Tesco Plc and Telefonica’s British arm. EU regulators are concerned the combination of O2 and Three would reduce the number of carriers willing to host mobile virtual operators on their network.

An earlier version of the story was corrected to reflect the status of U.K. regulator’s request to review the deal.

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