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What the Three and O2 merger means for you

Three still wants to buy O2, but Ofcom’s chief executive Helen White isn’t happy – so much so, she last week openly expressed her misgivings in The Financial Times’ letters page ahead of a preliminary ruling from the European Commission. We look at how the deal, which would make Three the UK’s largest mobile network, could affect consumers.

White’s main grounds for concern regard competition, which could see consumers forced to pay higher costs as they have in Austria, Germany and Ireland where similar deals have previously taken place.

Hutchison CK (which is the parent company of Three) has responded with some guarantees for consumers, reports The Week. Its co-managing director and Three UK’s chairman Canning Fok has guaranteed that customers “will get more and pay less” – Three will freeze call, text and data costs for five years following the merger.

Three’s promises to consumers:

• Three will invest £5bn in the combined company over the next five years, which is 20 percent more than what the two companies would have invested on their own

• Three will also offer smaller rivals unprecedented shared ownership interests in its network capacity to ensure effective competition

• Three won’t raise the price of calls, texts or data for five years following the merger

• Cost efficiencies will be shared so that “like for like, customers’ bills will go down”

The promises may not be exactly what they seem, however, fears Ernest Doku, telecoms expert at Doku says: “Even taking Hutchison’s three promises into account, there is a real risk this merger could stifle innovation and competition, reduce the incentive for networks to undercut each other, and lead to less innovative propositions.

“We would need to see more detail on its price freeze pledge, as there remains a question on what will happen to monthly contract prices where networks can potentially hide behind the absorbed handset cost. In an ideal world, customers would reap the benefits of both networks. O2 users might get Three’s roaming perks while O2 could boost Three’s customer experience, for example. But this has not been promised and it isn’t an ideal world.”

Read our original news story from January 2015 below.

After some speculation, it has been confirmed that mobile operator Three has entered into discussions to buy O2. See: UK’s best mobile network 2016.

Following BT’s announcement that it will acquire EE, the UK’s largest network, it seems more moves in the telecom industry are poised. Telefónica, which owns O2, has confirmed it has entered into an exclusivity agreement worth £10.25bn with Hutchison Whampoa, owner of Three.

That’s less than BT’s £12.5bn buyout of EE but the firm has more customers and a larger 4G infrastructure. Read: BT seeks to buy EE for £12.5bn: What it means for customers.

“This operation marks another step in Telefónica’s transformation process, initiated by the Company to become a leading digital telco and accelerate sustainable long term growth while maintaining an attractive remuneration policy,” said Telefónica.

Despite EE having more customers, the Three/O2 merger makes it the biggest UK network with a market share of 41 percent “The agreement is a win-win for both companies which were looking increasingly vulnerable as pure-play mobile operators in a market rapidly transitioning towards multi-play,” said Kester Mann, principal analyst at CCS Insight.

The UK’s mobile network market is being shaken up and this will almost certainly signal the end of various ongoing deals such as Three sharing EE’s network.

BT was initially eyeing up O2 as a potential deal last year but EE then entered the frame so the firm had the pick of the two. EE might have been a better deal for Three since with an existing network sharing deal in place and the same with BT and O2 but it looks like that wasn’t enough to swing it.

Hutchison Whampoa does have history with O2 though, as it purchased O2 Ireland back in 2013. See also: Best SIM-only deals.

One of the big questions is what is happening to competition in the UK telecoms market as if this deal goes through, four out of five successful bidders in the 4G spectrum auction will have merged. Ofcom effectivlely guaranteed Three 4G spectrum in fear of reducing the number of operators.

There are a number of other operators such as Tesco Mobile, GiffGaff, Virgin Mobile and others but they run virtual networks so deals could well change with the BT, EE and Three, O2 acquisitions.

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