Mobile phone operator Three looks set to have an uphill battle on its hands if it is to woo European regulators into backing its £10.2bn acquisition of rival O2.
While UK regulators recently green-lit BT's (BT.A) £12.5bn takeover of mobile giant EE, the watchdog's European peer seem much less keen to approve the nation's other landmark telecoms deal. Indeed, it may require Three to sell part of its network and make other concessions that could prove unpalatable for the telco.
UK competition authorities ruled in favour of the BT-EE deal largely because of the lack of overlap between the two companies - they expect it will have a minimal impact on competition. In contrast, a tie-up between Three and O2 would reduce the number of national mobile wholesalers from four to three, likely reducing consumer choice and pushing up prices. Moreover, EU regulators highlighted Three's positive role in the market as a disruptive provider of cut-price mobile services.
Europe's competition watchdog is expected to publish a list of its concerns within the next two weeks; Three will have until mid-April to accept its conditions or persuade it to soften its demands. The outcome of the deal has implications for other telcos. If it's approved, Vodafone (VOD) could benefit from less infrastructure-based competition, while regulators would likely ensure that both Sky (SKY) and TalkTalk (TALK) enjoy cheaper wholesale access to Three and O2's combined network. Three might also have to sell part of its network to a new market entrant such as Sky or Virgin Media, strengthening their mobile businesses. Meanwhile, BT might benefit from a nixed deal as its competitors - especially arch-rival Sky - would miss out on those benefits.
