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Ofcom chief White expresses fears over operator UK mergers and acquisitions

Paul Withers
October 8, 2015

Sharon White has argued that competition, not consolidation, drives investment into the market and delivers lower prices for consumers 

Ofcom has expressed fears over the proposed mergers of BT/EE and Hutchison Whampoa/O2, claiming they could lower investment and raise prices for consumers.

The comments were made by the regulator’s chief executive Sharon White (pictured) in a speech to the London School of Economics yesterday (October 7).

The Competition and Markets Authority is currently reviewing BT’s proposed £13.5 billion acquisition of EE, with both companies hoping for clearance before the end of the year.

Hutchison’s proposed £10.25 billion purchase of O2 has been notified to the European Commission, with Ofcom providing evidence on the implications for consumers.

Earlier this week, the Competition and Markets Authority (CMA) submitted a request to the EC to refer the takeover back to it for investigation.

Both companies are hopeful of a deal being completed early next year and if that happens, it would reduce the number of mobile operators in the UK market from four to three.

However, White said that if the acquisitions were to go through, she is concerned that it could result in the UK having more concentrated markets that could lead to high prices and reduced choice for competition, without the promised boost to investment and innovation.

She referenced the successful completion of the merger of Hutchison and Orange in Austria in 2013 that reduced the number of networks to three but said that since then, mobile prices have risen by 28 per cent, according to the country’s regulator.

White added that ‘light’ mobile users – typically older people, children and teenagers – have been hit the hardest, seeing prices rise by 36 per cent.

“Consolidation can in theory have benefits – improving economies of scale and making it easier to finance investment,” she said. “However, Ofcom’s experience is that competition, not consolidation, drives investment and delivers low prices. Our analysis of a dozen countries, inside the EU and beyond, shows no relationship between consolidation and investment.

“Only when companies cannot make an adequate return – because competitive pressure is so intense – might we expect investment to suffer. The evidence suggests that is not the situation in the UK market, which last year generated £15 billion of revenue. Even at a time when UK operators are investing billions to roll out 4G, they are maintaing a healthy average cashflow margin of more than 12 per cent.

“We continue to believe that four operators is a competitive number that has delivered good results for consumers and sustainable returns for companies. The crucial test for a regulator like Ofcom is whether prospective mergers promote or harm the interest of consumers.

“I am concerned that the UK could end up with more concentrated markets that lead to higher prices and reduced choice for consumers, without the promised boost to investment and innovation. This is an urgent question. Once competition slips away, it is hard to re-establish especially in telecoms where barriers to entry for new firms are high. If that is the risk, how should regulators respond?”

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