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O2 3 blocked merger
The Commission has blocked the proposed acquisition of O2 by Hutchison under the EU Merger Regulation. It had strong concerns that UK mobile customers would have had less choice and paid higher prices as a result of the takeover, and that the deal would have harmed innovation in the mobile sector.
Today's decision follows an in-depth investigation by the Commission of the deal, which would have combined Telefonica UK's O2 and Hutchison 3G UK's 3, creating a new market leader in the UK mobile market.
The takeover would have left only two mobile network operators, Vodafone and BT’s Everything Everywhere (EE), to relatively challenge the merged entity as Kin Ning Fok, also known as "Canning", Hutchison Group key executive and co-managing director, at the same time chairs Hutchison Telecommunications Australia Ltd. (HTAL) which has a 50% interest in a joint venture company, Vodafone Hutchison Australia Pty Ltd., that operates under the leadership of Vodafone.
The Commission understands that the significantly reduced competition in the market would likely have resulted in higher prices for mobile services in the UK and less choice for consumers than without the deal.
The takeover would also likely have had a negative impact on quality of service for UK consumers by hampering the development of mobile network infrastructure in the UK and would have reduced the number of mobile network operators willing to host other mobile operators on their networks.
The remedies proposed by Hutchison failed to adequately address the serious concerns raised by the takeover, stated the Commission.
Margrethe Vestager, commissioner for Competition said: "We want the mobile telecoms sector to be competitive, so that consumers can enjoy innovative mobile services at fair prices and high network quality. The goal of EU merger control is to ensure that tie-ups do not weaken competition at the expense of consumers and businesses. Allowing Hutchison to takeover O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector. We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal. It would also have hampered innovation and the development of network infrastructure in the UK, which is a serious concern especially for fast moving markets. The remedies offered by Hutchison were not sufficient to prevent this."
Cayman Islands flavour
Hong Kong-based CK Hutchison Holdings Ltd. (CKHH) was incorporated in the Cayman Islands on 11 December 2014 with an authorised share capital of HKD 380,000 divided into 380,000 shares of HKD 1 par value each. The authorised share capital of CKHH was subsequently increased to HKD 8 billion by the creation of 7,999,620,000 shares of HKD 1 par value each on 2 March 2015.
On the date of its incorporation, 1 share was issued and allotted. During the year, 2,316,164,337 and 1,543,514,162 shares were issued and allotted too.
Li Ka-shing, chairman of the CKHH Group and one of the world’s richest men (an HNWI who appears regularly on the Fortune 500 list of billionaires), decided to shift his business empire from Hong Kong to the Cayman Islands.
At a press conference describing his corporate restructure, Li Ka-shing warned of problems if a constitutional reform didn't was addressed in Hong Kong although rejected speculation that his Cayman Islands' move was a vote of no-confidence in Hong Kong. “People are free to say whatever they like. The fact is, my companies remain registered and listed in Hong Kong. More than 75 percent of the newly listed companies in Hong Kong over the past 10 years are incorporated in Cayman Islands, including China’s state-owned enterprises. Have they also lost confidence in Hong Kong? It’s not about confidence, but convenience,” Ka-shing said.
The Group’s telecommunications division consists of 3 Group Europe, Hutchison Telecommunications Hong Kong Holdings, Hutchison Asia Telecommunications and HTAL.
In March 2015, Hutchison Whampoa Ltd (HWL), a subsidiary of CKHH, entered into an agreement with Telefónica to acquire O2 UK for £9.25 billion cash and deferred upside interest sharing payments of up to £1 billion upon achievement by the combined business of 3 UK and O2 UK of agreed financial targets.
HWL is parent company of Hutchison Whampoa International (11) Ltd., a company based in Cayman Islands as a debt issuing vehicle which operates without any key executives recorded. Canning is also a key executive director of HWL.
In 2015, CKHH's total revenues amounted to approximately HKD 400 billion, 46% corresponding to operations run by its 3 Group Europe division in Europe of which 21% in the UK.
3-branded companies operate as UMTS mobile phone networks and broadband Internet Providers as well as in Austria, Denmark, Ireland, Italy, Sweden and the United Kingdom, in Australia, Hong Kong, Macau and Indonesia. 3 was launched in 2003.
The UK mobile market
According to the Commission the UK mobile market is currently competitive – retail mobile prices are among the lowest in the entire EU. The UK is also one of the most advanced countries in the EU in terms of roll-out of 4G technology and take-up of 4G services.
There are currently four mobile network operators in the UK – BT's mobile business EE, Telefónica's O2, Vodafone and Hutchison’s 3.
EE and 3 have combined their networks as “Mobile Broadband Network Ltd.” - MBNL. Similarly, Vodafone and O2 combined their networks to set up Beacon. This allows EE / 3, and Vodafone/O2 respectively, to share the costs of rolling out their networks but they continue to compete with each other for retail customers.
In addition to the four mobile network operators, there are a number of mobile "virtual" operators active in the UK retail mobile market, such as Virgin Media, Talk Talk and Dixons Carphone's iD. These mobile virtual operators don't own the networks they use to provide mobile services to UK consumers. Instead, they entered agreements with one of the mobile network operators to access their network at wholesale rates.
The Commission’s competition concerns
The Commission had serious concerns that the takeover would have reduced competition in the market, hampered the development of the UK mobile network infrastructure as well as the ability of mobile virtual operators to compete.
Less competition leads to higher prices and reduced choice and quality for consumers, hampers the future development of the entire UK mobile network infrastructure and reduces the number of mobile network operators effectively willing to host virtual ones, the Commission asserted.