Hong Kong conglamerate Hutchison Whampoa, the owner of Three, has promised to freeze prices for five years and sell off portions of its mobile spectrum holdings as it looks to push through its £10.25 billion acquisition of O2.
The European Commission (EC) is expected to issue a Statement of Objections concerning the deal on Friday, in the same week that Ofcom chief executive Sharon White raised concerns about the proposed purchase.
In a letter published today, CK Hutchison Group co-managing director and chairman of Three UK, Canning Fok, set out three promises from it if the deal was to be approved by the European Commission
The first is that the firm will freeze prices for calls, text and data over the next five years, effectively removing the near-term risk of any major price increases.
This fear of price rises for consumers was one of the key concerns raised by White and the EC.
The second promise is that Hutchison will invest £5bn in the UK network over the next five years, claiming that this is 20 percent more than O2 and Three would have invested cumulatively if operating individually.
“More importantly, it is much more efficient spending, so quality of service in terms of capacity, coverage, reliability and data speeds will improve much more than if the two companies had not been combined,†the firm said.
Finally, Hutchison has promised to offer some of its spectrum to the market for shared ownership, which could enable the creation of a fourth mobile operator in the UK.
“This is unprecedented in the UK telecoms wholesale market. It eliminates the tricks some wholesalers use to disadvantage their wholesale customers and thus make it harder for them in turn to make competitive offerings to their own customers,†Hutchison said.
This could be the most interesting proposal to regulators, as the EC and Ofcom have fought hard to keep competition in telecoms vibrant by maintaining four-player markets.
The announcement follows concerns over the merger of Hutchison’s Three and O2, such as rising prices for consumers and falling investments. These have been raised by regulators in UK and Brussels, because the proposed deal would reduce the number of players in the UK mobile market from four to three and make the new combined company a market leader in this sector with a 40% market share.
Kester Mann, principal analyst covering operators at CCS Insight, said that Hutchison is clearly preparing for a long and projected battle with the EC.
“The onus will fall on Hutchison to propose satisfactory remedies to allay the EC’s concerns. Today’s announcement is the first step, but it is unlikely to appease competition chief Margrethe Vestager, who has adopted a hard line on in-market mergers,” he said.
“More likely, Hutchison will need to facilitate the entrance of a new player to retain the status quo of four national network providers. As such, its pledge around selling slices of network capacity will be the most heavily scrutinised.â€Â
Mann explained that this move could allow other content providers, such as Vodafone or Sky, to become “fully-fledged” mobile operators.
“Sky or Virgin could be among the winners if Three is required to sell network or spectrum assets, enabling either or both to offer more fully-fledged mobile services as part of a wider push into multiplay,†he said.
However, he noted that Hutchison will have to tread carefully as agreeing to EC concessions could end up creating a more competitive market that undermines the purpose of the O2 acquisition.
