Ofcom urges EU to block Three-O2 merger

Regulator warns that mobile tariffs will increase if £10.5 billion deal is approved

Telecom regulator Ofcom has called for Three's acquisition of O2 to be blocked, warning that it could lead to higher mobile bills for UK consumers and businesses.

The watchdog's chief executive, Sharon White, wrote in a column for the Financial Times that she was concerned the UK's smallest mobile network will become the biggest by acquiring its rival.

Three's proposed 10.5 billion acquisition of O2 would reduce the UK's mobile carrier market to three companies the others being EE, which was recently bought by BT, and Vodafone.

The new Three-O2 group would command more than four in 10 mobile connections, White claimed.

She added that Three owned by Hong Kong's Hutchison Whampoa group has often acted as a "disruptive" operator, challenging its competitors through innovation and low prices, an advantage she argued would be lost through consolidation.

"We are analysing mobile prices over recent years in 25 countries," she wrote. "Our findings show that average prices are around 10-20 per cent lower in markets with four operators and a disruptive player than in those with only three established networks."

The merger bid is due to be assessed by the European Commission, and White said Ofcom has put this argument, along with others about the disruption of network infrastructure and retail competition, to the body.

Ofcom's letter comes after Three ended its 17 per month unlimited mobile data and mobile calls plan last week, forcing existing customers onto a 30 tariff if they do not opt out within 30 days.

The European Commission is expected to issue Three with a list of objections to the merger tomorrow, according to the Telegraph, which also quoted Sky's chief strategy officer, Mai Fyfield, as in support of the deal.

She said: "under Three's ownership we would me more confident that the direction of O2 would be clear. If it's blocked there is going to be a question over what happened to Telefonica. They don't look like they are interested in being a long term owner."

However, BT's recent merger with EE led TalkTalk to warn the move could lead to price rises of 25 per cent, particularly if the Three-O2 deal goes ahead.

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