Freeband TV News

Orange and T-mobile denied easy ride

Chris Andrews

OFT request to EC should put approval ball in UK court

If Orange and T-mobile were hoping for an easy ride through their planned merger, it would seem that they’re out of luck. The UK’s Office of Fair Trading (OFT) has made a request to the European Commission to refer the UK aspects of the joint venture to the OFT, which potentially means micro-scrutiny of the deal outside of Brussels.

Back in January, Deutsche Telekom’s T-Mobile division said it would prefer European Union, rather than UK, authorities to review the proposed merger, as it feared the latter’s approval process could push the deal back to 2011. It seems unlikely that they’ll get their wish.

The OFT has reported that its initial view, following consultation, was that the “joint venture threatens significantly to affect competition in mobile telecommunications in the UK”.

What this means is that if its request to the EC is granted, it intends to examine the proposed venture before deciding whether it should be referred to the Competition Commission for an in-depth investigation. That’s not to say that it will definitely be referring it, but consumer groups in the UK have raised a number of concerns about the merger, and it seems that the OFT is listening.

Independent consumer watchdog Which? has, as would be expected, said it is pleased with the OFT’s decision, and that it sees no reason why the EC should reject the request. Its Chief Executive Peter Vicary-Smith said: “This merger will clearly have a huge impact on the mobile market, since it will form the biggest mobile operator in the UK and bring the number of networks down to just four. We don’t believe the deal should go ahead unless the OFT and Competition Commission are satisfied there will be no detriment to UK consumers.”

The statutory consumer champion Consumer Focus has also welcomed the decision, as “the impact of the proposed merger would be felt most in the UK so it is important that this is scrutinised by domestic regulators closer to the UK mobile sector”, according to the organisation’s Deputy Chief Executive Philip Cullum.

“Any review of this merger must look closely at its impact on consumers. Consumers in the UK have benefited from a competitive mobile market in recent years and we would be concerned about any reduction in competition and choice,” he said.

So what’s the problem? Well back in December Consumer Focus, along with the Communications Consumer Panel, wrote a joint submission to the EC, calling for a detailed review of the proposal. It pointed out that if the merger were approved, the new entity would control a 37 per cent stake in the retail mobile market, with an interest in over 40 per cent of UK subscriptions if mobile virtual network operators were taken into account. This, it said, would have ‘substantial implications’ for consumers – something of an understatement really - and thus needed to be examined carefully.

The submission went on to outline some specifics of how the merger could potentially impact the UK market in four main areas.

First is 3G coverage. While existing customers of Orange and T-mobile would likely benefit from the increased footprint of the merged entity, good news for them, improvements in 3G coverage for all UK consumers really comes down to competition between operators. Fewer operators means the potential of reduction in competition over coverage, and the effect could be heightened, said the submission, if the merger “encourages further market consolidation at the infrastructure level”.

Second is the squeezing out of smaller players in the market, like 3, which would be detrimental both in pure competition terms, but also in terms of the innovation that smaller operators currently bring to market in an effort to compete with the big players.

Third is the potential effect on radio spectrum, as the merged company would hold a huge percentage of allocation of the1800MHz spectrum in the UK. “We believe that the UK is at a pivotal point in building the foundations for the rollout of the next generation of mobile technology,” said the submission. “... the misallocation of spectrum at this point could harm significantly the competition required to ensure that consumers have nationwide access to mobile broadband at an affordable price within a reasonable timescale.”

And finally, there is concern that at the wholesale level, the merger could have detrimental consequences for virtual operators, such as Virgin, with a reduced choice of competing networks at the wholesale level potentially making conditions harder for virtual operators seeking to enter the market, or to improve their existing arrangements.

The OFT has said it has a duty to make a reference to the Competition Commission if it believes that “it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation, and the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the UK for goods or services”.

Again, it is not set in stone that the case will be passed on to the Competition Commission (and it’s also not guaranteed that the EC will grant the request, though it is highly likely that it will), but additional scrutiny of a deal which will have such obvious wide-ranging consequences must be a good thing, even if it does mean a push back to 2011 before the merger can take place.

Latest Press Releases