The telecoms regulator has dropped its long-held belief that a merger between any of the UK’s big four mobile operators should be blocked at all costs, reigniting fears that less competition could lead to higher-priced phones and bills for consumers and businesses.
Under the former chief executive Sharon White, Ofcom was an outspoken opponent of Three UK’s attempted £10.25bn takeover of O2, which was blocked by competition regulators six years ago. Ofcom said on Tuesday it had now “clarified its position on mobile consolidation”.
Months before the deal was blocked, White, who is now the chair of the John Lewis Partnership, delivered a scathing speech attacking the deal, saying that a move from four to three main players would “shift the balance of power” in the market.
“Competition is the lifeblood of today’s telecoms market, spurring innovation, better coverage and fair prices,” she said. “The deal could mean higher prices for consumers and businesses.”
Three and O2 offered to freeze prices for five years in a bid to gain regulatory clearance.
However, the UK’s Competition and Markets Authority, to which Ofcom feeds market data and views on any takeover, and the European Commission both subsequently agreed that the deal should be blocked.
Ofcom has previously explicitly stated in its annual plans that the UK market needs four leading mobile players in order to operate efficiently. The UK’s four biggest operators are O2, which is now part of Virgin Media O2, with 34 million customers, BT-owned EE, which has 26 million, Vodafone UK at 18 million, and Three UK with 9.3 million.
On Wednesday, Ofcom softened its outright opposition to such a prospect in today’s market, saying: “Our stance on a potential merger would be informed by the specific circumstances of that particular merger, rather than just the number of competitors.”
The shift in position will be welcomed by the Vodafone boss, Nick Read, who is under pressure to improve the company’s performance from the new activist investor Cevian. Read has been outspoken about the need for a change in the regulatory stance to allow mergers from four to three competitors, as has been seen in markets such as the US.
Last week, he said that the European telecoms industry must consolidate to create more profitable businesses that are more attractive to investors. He confirmed the mobile operator was speaking to rivals in the Germany, Italy, Spain and the UK, including Three.
Shares in Vodafone hit a seven-month high in January after it emerged that the company had held talks late last year to buy Three UK from its parent, CK Hutchison, a takeover that would create a British mobile powerhouse with almost 30 million customers.
A relaxation in Ofcom’s view on how it will handle future potential deals opens the door to a possible mega-mobile merger between the two companies, with Three UK’s chief executive welcoming the possibility of consolidation.
Robert Finnegan said the UK mobile market needed consolidation as its infrastructure was “subpar” compared with many other countries.
“As things stand, the UK does not have the quality of mobile infrastructure it deserves,” he said. “Investment is spread too thinly across too many players, meaning our networks are subpar by international standards.”
Finnegan said consolidation in the industry could improve networks. “Moving from four to three mobile players in the UK would mean better, smarter investment in the networks which would, in turn, improve the quality and scale of connectivity in Britain and would unleash more competition,” he said.
He added that ultimately this would mean customers and businesses would “benefit from more choice and better deals”.
In 2020, the general court of the European Union annulled the commission’s decision to block the Three/O2 merger in 2016. The commission is awaiting the outcome of an appeal of the general court’s decision to the European court of justice.
While Ofcom’s change in position may spark hope of a mega mobile merger, it is ultimately the Competition and Markets Authority that decides whether any deal among the UK’s main mobile operators should be approved or blocked.
Earlier this week it emerged that the telecoms group Iliad, which is controlled by the French billionaire Xavier Niel, made an offer of more than €11bn to buy Vodafone’s Italian business.