Ofcom casts doubt on O2/Three merger

The UK telecoms watchdog has cast doubt on the merger of O2 and Three winning regulatory approval.

Ofcom chief executive Sharon White said in a speech in London on Wednesday night that "four operators is a competitive number".

The proposed £10.2bn ($15.6bn) deal would reduce the number of UK mobile networks from four to three.

She said mobile operators implied that the UK market was "too competitive".

Ms White also said they claimed that profit margins were too low.

O2 is owned by Spain's Telefonica, while Three is owned by Hong Kong-based conglomerate Hutchison Whampoa.

Competition or consolidation?

"Consolidation can in theory have benefits - improving economies of scale and making it easier to finance investment. However, Ofcom's experience is that competition, not consolidation, drives investment and delivers low prices," Ms White said.

Having four UK networks had delivered "good results for consumers and sustainable returns for companies", she added.

The Ofcom chief said a combined Three/O2 would have a market share of more than 40% and would remove the "competitive new entrant" in Three.

Her comments follow last week's warning by the Competition and Markets Authority (CMA) that the merger threatened to "affect significantly competition" in both the retail and wholesale mobile markets.

The CMA has asked the European Commission for the right to investigate the deal, rather than the EC, as it said the deal mostly affected UK consumers.

It also argued there were "clear links" between this deal and BT's £12.5bn deal to buy EE.

'Crucial period'

The EC must decide by 30 October whether to allow the CMA to investigate.

Ms White said this was a crucial period for the telecoms market.

"The scale of change in the next 12 months and beyond could dwarf what we have seen over the last 10 years. If the current merger wave continues, there are risks to consumers and businesses who have enjoyed one of the most competitive markets of recent years," she said.