Telecom deals that may harm UK consumers

Authorities could step in to block mergers

TWO deals that will change the shape of Britain’s telecoms industry are facing serious challenges from the regulators and c o mpeti ti o n authorities.

One sees BT buying EE in a £12.5bn mega- deal that will extend the former state owned group’s reach into mobiles.

The second sees Hong Kong conglomerate Hutchison Whampoa, owner of the Three network, snap up larger rival O2 in a move that leap-frogs it past EE to become Britain’s biggest mobile provider.

Each deal has its merits. But both have also attracted significant criticism. There are fears that a significant change to the market could lead to prices for consumers rising relative to the service that they receive.

More complicated packages of broadband, mobile and TV will also muddy the waters for households trying to assess whether they are getting a good deal.

One major complication is that the two deals are being assessed by different regulators. BT’s EE takeover is being investigated by Britain’s Competition and Markets Authority, while the Three-O2 deal will be scrutinised by the European Commission.

But one domestic body, with a specific remit of protecting consumers’ interests, will have significant input into both deals.

The voice of regulator Ofcom will carry a good deal of weight in both cases. Chief executive Sharon White, who has only been at the helm since March, will be responsible for steering the body’s recommendations on both deals.

Appearing before MPs yesterday, she said: ‘As firms start to want to offer a multitude of services, it is understandable there is a move to consolidate, and so the issue for the competition authority is what is the impact on the consumer – particularly when you get one mobile company purchasing another mobile company?’ – a reference to Three’s O2 takeover.

She told MPs on the culture, media and sport committee that ‘the packaging of content and pipework into one bundle could be a great offer for the consumer but it could also make for a more sticky market,’ which would ultimately mean customers switched less and would lead to a ‘lessgood deal for consumers’.

BT has said that its deal with EE will allow consumers to access all of their media and telecoms services from a single point.

it also claims the move will unlock significant amounts of investment that both companies would not be able to make independently. But there are concerns that less savvy consumers will end up subsidising others who pick and choose their deals more carefully.

The fear is that consumers who take only a few services – who will tend to be older customers taking only home phone and basic internet – may end up seeing their prices rise to fund cheaper deals offered to customers who take all four services.

The CMA has launched a ‘phase two’ investigation into the deal, arguing that it ‘gives rise to a realistic prospect of a substantial lessening of competition‘. The move was welcomed by both BT and EE.

Analyst Michael Bishop at RBC said he expects BT to offer ‘relatively rational’ mobile prices through EE, with ‘the best integrated data experience’ once the deal is complete.

Rivals say that BT will have a dominant position because of its network of cables that it leases to peers to carry their internet.

BT has argued that its Openreach division is run at arm’s length and that it treats all of the companies it supplies – including BT’s consumer division – the same. Nevertheless, competitors have called on Ofcom to break up the company.

The second deal, Three taking over O2, has aroused greater worries over the impact on consumers. While BT’s deal crunches together two providers with little overlap, Three’s O2 deal reduces the number of companies that own their own network.

Currently there are only four – Vodafone, O2, EE and Three.

But this will fall to three if the takeover is waived through.

in other markets, analysts point out that prices tend to rise when the number of operators shrinks.

John Delaney, head of European mobile analysis at respected research firm IDC, said: ‘Reductions in the number of competing mobile operators have generally been followed by less vigorous competition in the retail pricing of mobile services, and thus in a slowing of the rate at which the price of mobile comes down.

‘in Austria, there have even been recent signs that prices may be starting to move up again, albeit slightly and slowly.

‘Despite this, European regulators have proved increasingly amenable to approving four-to-three consolidation deals, but regulatory approval for a Three/ O2 merger in the UK is far from being a forgone conclusion.’

He said that the resulting company may be forced to offer more white label services over its network in order to qualify.

Talk Talk boss Dido Harding, who has been one of the most vociferous opponents of the deals, says the risk of the two arrangements being signed off by different authorities would lead to consumers sleep-walking into a world of higher prices and less transparent deals.

in an interview with the Daily Mail earlier this year, she warned that i f the deals go through unchallenged, ‘you will wake up in 10 years’ time, and we won’t have choice and prices really will have gone up, and not by a bit, that they will have gone up very fundamentally.’