Hutchison Whampoa is facing tussles with the European Commission over two proposed acquisitions for its Three group – of Telefonica’s O2 in the UK, and Vimpelcom’s Wind in Italy.
The company has made three pledges to the European competition commissioner, Margrethe Vestager, in a bid to secure approval for its UK bid, which is expected to hit problems because it would reduce the number of MNOs in the country – an issue which did not affect the recently completed purchase of EE by telco BT, even though that has far bigger market reach across the whole quad play market.
Canning Fok, co-managing director of the CK Hutchison group, which runs 3 Europe, outlined the three promises – the merged entity would not raise prices of voice, text or data for five years following its creation; the enlarged group would invest £5bn over five years, which would be at least 20% more than the two companies would invest separately; and the company would enable “other meaningful competitors” to enter the market by offering “fractional shared ownership interests in our network capacity” for sale to rivals or new entrants.
Given that the UK is in the midst of a price war, the first of the promises may not mean very much – one reason for the wave of consolidation in the UK and other competitive European countries is to give operators greater economies of scale, and the ability to launch new multiplay services, as the revenues from core voice and data drop.
As for the second, it is a useful guarantee that the merger would not be all about cost-cutting, though it is hard to say how much the separate firms would need to invest over a five-year period, especially as either could pursue different partnerships and strategies.
However, the third may carry more weight, since opening up networks, or selling assets, to enable new competition was a key condition of some other recent mergers where the number of MNOs in a country was reduced – this was seen in Ireland and Germany, for instance.
This promise was also likely to be the reason for UK cableco Virgin Media’s surprise declaration that it would support an O2/3UK merger. “Any competition concerns can be addressed without blocking the proposed O2/3 transaction,” CEO Tom Mockridge said, even though an enlarged MNO could squeeze Virgin’s well established MVNO. But the change could enable Virgin to expand its MVNO activities and acquire its own assets, possibly as an alternative of the much-rumored option of merging with Vodafone UK to create a quad play rival to BT/EE.
Fok was also critical, in his statement to the EC, of Sharon White, CEO of UK telecoms regulator Ofcom, who he said “felt the need to go public with her conclusions about the effects of CK Hutchison’s proposed acquisition of O2, without having asked for or heard our views in response to her concerns”. White told the Financial Times of her concerns that the deal would make the UK less competitive.
Meanwhile, Hutchison and Vimpelcom have formally notified the EC of their plans to merge their Italian fixed and mobile businesses, which they proposed in August. The Commission will make its initial ruling by March 11. The operators intend to bring together 3 Italia and Wind under Hutchison 3G Italy Investments, which is currently owned by Hutchison but will become a 50:50 joint venture. The firms value their combined business at €21.8bn.
This would make a stronger quad play competitor to Telecom Italia, though it will not change the fixed line rankings. Wind is the second largest player behind Telecom Italia, with 13.4% market share as of the end of September, according to regulator Agcom, compared with the incumbent’s 58.7%. Wind also has 15.4% of the fixed broadband market.
In the mobile market, which will attract most scrutiny, Wind and 3 Italia are the third and fourth largest players respectively, but would become the market leader if they merged, with 33.9%, just ahead of TI’s 32.3% and Vodafone’s 26.5%.
Back in the UK, BT has secured its MNO prize, but still faces calls for tougher regulation to separate its wholesale business, Openreach, or even to spin it off. That would address rival MNOs’ fears that EE might get preferential access to fixed lines for quad play and mobile backhaul. Last week, Vodafone threw a new spanner in the works by saying it would be interested in investing in an independent Openreach, because of its high levels of profit.