The article from the FT (if you don't subscribe):
Hutchison pledges to price freeze to win Three-O2 approval
Li Ka-shing-owned group makes offer in bid to convince sceptical regulators to back UK mobile deal
https://next.ft.com/content/508f3a12...b-b7ece4e953a0
Hutchison pledges to price freeze to win Three-O2 approval
Li Ka-shing-owned group makes offer in bid to convince sceptical regulators to back UK mobile deal
https://next.ft.com/content/508f3a12...b-b7ece4e953a0
Quote:
“Mobile phone prices for tens of millions of UK customers would be frozen for five years as part of a £5bn investment drive by Li Ka-shing’s CK Hutchison to win over competition watchdogs to its £10.5bn acquisition of O2.
The merger of Hutchison’s Three and O2 would create the country’s largest mobile group, with control over about 40 per cent of the market. That has raised concerns among regulatory authorities in the UK and Brussels, who worry that reducing the number of mobile operators from four to three could lead to skyrocketing prices and falling investment.
In response, the Hong Kong-based group has promised to hold prices for five years for British customers of O2 and Three, while also opening its network to rivals.
The company said that the £5bn investment over five years would be used to improve coverage, reliability and data speeds, and represents about a fifth more than would have been invested by the two standalone companies combined.
In a letter to the Financial Times, Canning Fok, co-managing director of CK Hutchison, promises that “every cost efficiency that combining the businesses achieves will be shared with our customers. Like for like, customers’ bills will go down.”
Hutchison will use those arguments in its negotiations with the commission, as it seeks to win approval for a deal that has already drawn objections from Ofcom, the UK telecoms regulator.
On Monday, Sharon White, Ofcom’s chief executive, urged Brussels’ antitrust regulator to block the deal, pointing to prices rising by as much as a fifth in countries with just three competitors.
Her concerns are expected to be reflected in a detailed document of objections to the acquisition to be published by the commission on Thursday.
The commission is worried about a broad range of areas concerning retail and wholesale competition, as well as damage to network-sharing arrangements and the impact on retailers that sell mobile contracts.
Price pledges may not carry weight with the commission, which prefers structural remedies rather than artificially seeking to dictate costs.
Hutchison’s pledge is also based on unit price, while the commission and Ofcom may prefer to use overall costs of mobile packages at a time when consumers are increasingly buying more expensive bundles of data.
The key promise is likely to be around how far Hutchison will go on opening or selling parts of the combined network to encourage competition.
The company has promised to offer “fractional shared ownership interests in our network capacity” — in effect, allowing rivals that do not own mobile networks such as TalkTalk, Sky and Virgin Media to buy slices of capacity on its network.
“This is unprecedented in the UK telecom wholesale market. It eliminates the tricks some wholesalers use to disadvantage their wholesale customers,” Mr Fok wrote in his letter.
However, this falls short of the solution proposed by Ms White of creating a fourth, standalone rival to replace Three or O2 by selling spectrum and infrastructure. Hutchison is unlikely to agree to go to such lengths, according to analysts.
Mr Fok wrote that Hutchison has already spent billions to create Three, the smallest of the four mobile groups in the UK.
He added that the combination of Three with O2 “makes us able to stand up to the new leviathan BT. Not to mention to the old top-of-the-heap predator Vodafone and is the only way we can guarantee that five years from now customers will still be getting more and paying less for mobile services.””
“Mobile phone prices for tens of millions of UK customers would be frozen for five years as part of a £5bn investment drive by Li Ka-shing’s CK Hutchison to win over competition watchdogs to its £10.5bn acquisition of O2.
The merger of Hutchison’s Three and O2 would create the country’s largest mobile group, with control over about 40 per cent of the market. That has raised concerns among regulatory authorities in the UK and Brussels, who worry that reducing the number of mobile operators from four to three could lead to skyrocketing prices and falling investment.
In response, the Hong Kong-based group has promised to hold prices for five years for British customers of O2 and Three, while also opening its network to rivals.
The company said that the £5bn investment over five years would be used to improve coverage, reliability and data speeds, and represents about a fifth more than would have been invested by the two standalone companies combined.
In a letter to the Financial Times, Canning Fok, co-managing director of CK Hutchison, promises that “every cost efficiency that combining the businesses achieves will be shared with our customers. Like for like, customers’ bills will go down.”
Hutchison will use those arguments in its negotiations with the commission, as it seeks to win approval for a deal that has already drawn objections from Ofcom, the UK telecoms regulator.
On Monday, Sharon White, Ofcom’s chief executive, urged Brussels’ antitrust regulator to block the deal, pointing to prices rising by as much as a fifth in countries with just three competitors.
Her concerns are expected to be reflected in a detailed document of objections to the acquisition to be published by the commission on Thursday.
The commission is worried about a broad range of areas concerning retail and wholesale competition, as well as damage to network-sharing arrangements and the impact on retailers that sell mobile contracts.
Price pledges may not carry weight with the commission, which prefers structural remedies rather than artificially seeking to dictate costs.
Hutchison’s pledge is also based on unit price, while the commission and Ofcom may prefer to use overall costs of mobile packages at a time when consumers are increasingly buying more expensive bundles of data.
The key promise is likely to be around how far Hutchison will go on opening or selling parts of the combined network to encourage competition.
The company has promised to offer “fractional shared ownership interests in our network capacity” — in effect, allowing rivals that do not own mobile networks such as TalkTalk, Sky and Virgin Media to buy slices of capacity on its network.
“This is unprecedented in the UK telecom wholesale market. It eliminates the tricks some wholesalers use to disadvantage their wholesale customers,” Mr Fok wrote in his letter.
However, this falls short of the solution proposed by Ms White of creating a fourth, standalone rival to replace Three or O2 by selling spectrum and infrastructure. Hutchison is unlikely to agree to go to such lengths, according to analysts.
Mr Fok wrote that Hutchison has already spent billions to create Three, the smallest of the four mobile groups in the UK.
He added that the combination of Three with O2 “makes us able to stand up to the new leviathan BT. Not to mention to the old top-of-the-heap predator Vodafone and is the only way we can guarantee that five years from now customers will still be getting more and paying less for mobile services.””
