CK Hutchison Holdings Ltd.’s $14.5 billion bid for Telefonica SA’s UK mobile-phone business has failed to win over European Union antitrust regulators, who are expected within weeks to formally block the deal creating Britain’s biggest operator.
The European Commission wasn’t convinced that Hutchison’s offers to sell space on its network to so-called virtual operators would create enough rivalry to prevent potential price increases, according to two people familiar with the negotiations. The EU, backed by UK antitrust and telecom agencies, is holding out for Hutchison’s Three and Telefonica’s O2 to offer to sell part of their network infrastructure to a new rival, the people said.
Barring a last-minute breakthrough, Hutchison is focusing on whether it could win approval for a bid to merge its Italian operations with VimpelCom Ltd., another deal that would reduce the number of mobile-phone operators from four to three. The EU opened an in-depth probe into that transaction last month. Hong Kong-based Hutchison is already preparing to challenge any EU move to block the UK deal in court, a process that can take years, the Sunday Telegraph reported.
Shares of Telefonica fell 3.2 per cent to 9.32 euros at 9:07 am in Madrid, while Hutchison lost 2.2 per cent to HK$97.15 in Hong Kong.
An EU ban may halt a wave of consolidation in the European telecommunications industry after regulators cleared mergers in Germany, Austria and Ireland. It would be the first merger to be blocked since Margrethe Vestager became competition commissioner in 2014, though opposition to a Danish mobile deal forced the companies to ditch the proposal last year.
Hutchison declined to immediately comment. Telefonica didn’t immediately respond to a request for comment. O2 declined to comment ahead of a formal EU decision.
The European Commission declined to comment, saying its investigation is ongoing. It has a 19 May deadline to make a decision, but could issue a ruling as soon as the end of April.
Britain’s antitrust watchdog last week urged the EU to halt the merger of Three and O2, saying it risked "long-term damage to mobile-phone markets." Only a sale of mobile network infrastructure to a new network operator – almost unstitching the deal – would allay their concerns.
There’s "no taker" for such a solution, Hutchison said last week. It argues that its other efforts to boost phone networks go beyond what’s been offered in previous deals and would stoke competition in the UK.
Regulators are increasingly skeptical of this approach. Mobile virtual network operators lack the clout of network owners to effectively compete, one of the EU’s top merger officials said last week. The EU blocked the Danish deal because it didn’t see "a commitment to a fourth network operator, which we thought necessary," Carles Esteva Mosso said.
Hutchison has never tried to seriously allay concerns from the EU and UK regulators over network sharing arrangements which, as the deal currently stands, would see it with a foot in both camps by working with rivals Vodafone Group Plc and BT Group Plc. Withdrawing from either deal isn’t a solution because one of the networks would be left out in the cold, without the kind of coverage its rivals could offer.
Telefonica, Spain’s largest phone company, is relying on the deal to cut its €49.9 billion ($56.3 billion) debt load as it strives to maintain its credit rating.
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