Hutchison Whampoa is planning to float Three-O2 and is prepared to sell spectrum to get EU approval
Hutchison Whampoa plans to make the merged O2-Three a public company, but first it faces a battle to get the £10.25 billion deal approved following reports the European Union (EU) will launch an “extensive investigation” into the transaction to satisfy any competition concerns.
The Hong Kong-based firm submitted its formal application for approval last week, but the failure of the planned merger between TeliaSonera and Telenor’s Danish operations has prompted concerns the EU is taking a tougher line to telecoms mergers.
Reuters claims a full investigation could last five months due to the complexity of the case and could result in Hutchison giving up valuable low frequency spectrum in the 800MHz band – a condition it is reportedly more than willing to accept in order to gain approval.
The combination of O2 and Three in the UK would result in the creation of the country’s largest mobile operator with around 33 million customers, but as with the case in Denmark, the number of networks would be reduced from four to three.
The EC might have concerns that any merger could impact the market and harm consumers. Three, currently the UK’s smallest operator, has a history of disrupting the market with low prices, roaming offers and 4G at no extra cost. Should it become the largest operator, the need for such aggressive tactics would be less obvious.
Hutchison is expected to argue that if the merger does not go ahead, both Three and O2 would be unable to compete with Vodafone and a BT-owned EE.
TechWeekEurope has approached Hutchison Whampoa for comment, but speaking to the Financial Times, its co-CEO Canning Fok said it was confident of receiving approval after it was given the go-ahead in Austria and Ireland.
The fact that EE and Three share some mobile infrastructure and O2 shares with Vodafone could also attract the EU’s attention, but Fok said it would not simply abandon either joint-venture overnight and would work with UK regulator Ofcom.
Fok also revealed that if the takeover is given approval, the merged entity could be floated on the stock exchange, marking the first time O2 has traded as a public company since being taken over by Telefonica more than ten years ago.
The operator would be led by current Three CEO Dave Dyson, while O2 chief executive Ronan Dunne has confirmed he will step down from his post once the merger is completed. It is unclear whether Dunne will stay on in another role. The O2 brand is also likely to be kept alive for a short period at least.
“You can assume that it might become Three. But there is a twist,” Fok is quoted as saying. “We haven’t made the final decision yet. We have a certain time we can use O2. It’s a strong brand.”