back to article Ofcom's head is dead against Three and O2's merger

Ofcom chief exec Sharon White has decided to tell everyone what she really thinks about the possible £10.5bn merger between O2 and Three – and it turns out the regulator-in-chief is not a fan. Hong Kong’s CK Hutchison announced its intention to acquire O2 from Telefónica last year. However, the European Commission has opened …

  1. Andrew Jones 2

    One wonders how much she was paid off with during the EE/BT deal then - because she clearly wasn't bothered about shrinking the number of providers then was she.

    1. Drefsab_UK

      To be fair on that she pointed out that the number of players in the market are not reduced. BT don't have a mobile arm, EE do so what ever they will be called after the merger number of competitors in the market remains the same.

      Personally I'd love to see Three merge with someone because I use three as they are the only mobile operator that sell's packaged with enough data to be of use to me without breaking the bank.

      With more an more content online (spotify, netflix, the list goes on) I use a lot of data but I dont use a lot of call's or texts. So my 200 mins 500 text unlimited data rolling monthly contract suits me down to the ground. But if it didn't then who could I go with? no one else has a decent data plan everyone else has just a few gig a month and I have to double/triple the package to get a limit thats right for me.

      1. Andy Nugent

        You're assuming that Three will still offer those unlimited data / low cost / rolling monthly contracts if they're the biggest network. I doubt very much they will.

        1. Franco

          I'm with 3 myself and haven't been affected by this (as yet), but the tariffs they are axing at the moment are unlimited data ones, and this is pre-merger/takeover.

          http://www.bbc.co.uk/news/technology-35441452

        2. Bob Magoo

          They still do in Ireland where a similar deal went through 2 years ago.

        3. Anonymous Coward
          Anonymous Coward

          Already gone...

          They canned the unlimited/low cost contracts last week. Thus I think what prompted Ofcom's missive of lurve to the EU.

          1. ARGO

            Re: Already gone...

            There's an unlimited data plan for £20/month on their website at the moment. That seems pretty cheap.

            1. Roland6 Silver badge

              Re: Already gone...

              There's an unlimited data plan for £20/month on their website at the moment. That seems pretty cheap.

              The plans with "unlimited tethered" data went a while back. Three are currently trying to convert these old plans to limited plans by forcing users to contact them within the coming month and say they don't want the new plan, ie. they are changing the Ts&Cs...

            2. Dazed and Confused

              Re: Already gone...

              > There's an unlimited data plan for £20/month on their website at the moment. That seems pretty cheap.

              18months ago you could get that 200mins & unlimited data 1 month rolling contract for £12.9? a month when I signed up eldest son, last year in bumped up and then up, I think it we put the youngest one on it at £18/month but a 1 year contract.

              We've got 3 of these contracts now and haven't (yet) heard from 3 about canning them. I did get a text from them today saying that they now have an addon for using your phone as a hotspot, which we've never done. The contract allowed for 4GB/month as a hotspot and unlimited for the phone itself. Number 2 son says he routinely pulls about 130GB/month these days!

            3. Loud Speaker

              Re: Already gone...

              But their unlimited data plan was £13.50 a year ago.

      2. Anonymous Coward
        Anonymous Coward

        "call's" ? WTF ?

        But yes, I agree with you from a slightly different angle - I would love to see Three's network coverage improved. Rather too many blackspots in apparently covered areas for my liking. (About the ONLY thing I was happy with on Vodafone)

    2. Vince

      Maybe not, but it does give EE a huge advantage. Imagine not having to actually pay for all that backhaul anymore across the country. Because essentially that's the gift EE now has.

      It's not even like the tails/last mile has to be paid for really, because Openreach is still ultimately part of BT plc, and therefore it's just internal movement on an accounts system, and not real money being spent.

      That this was allowed is a huge problem for Vodafone, 3 and O2 because they don't have that advantage.

      1. Anonymous Coward
        Anonymous Coward

        Don't Vodafone own C&W's national network? And last miles can be delivered by microwave or Virgin leaded lines. There's no need to pay BT a penny if you don't want to.

      2. chris 17 Silver badge

        Vodafone purchased Cable & Wireless (UK) the other year, expressly for their UK fibre network. This was so they can on net their base stations and save a chunk of money. IIRC Cable & Wireless had the second largest fibre network in the uk.

        1. Anonymous Coward
          Anonymous Coward

          > Vodafone purchased Cable & Wireless (UK) the other year, expressly for their UK fibre network

          Anon for obvious reasons ...

          At work we have a leased line internet service that came from one of the smaller players borged by Clueless & Witless (anyone remember Norweb Telecoms, that became Yourcomms, and then part of Thus ?). When C&W bought them, service went down - badly.

          When Vodamoan bought C&W, service levels went down again.

          Last year, we migrated a number of customers from ADSL to FTTC, using Vodamoan supplied services - they were OK to start with, but very shortly afterwards they became utter utter utter sh**e, and I really do mean utter sh**e. Thing a line syncing at perhaps 60+Mbps getting only 1Mbps throughput due to congestion at a single point in Vodamoan's network. This went on for months and months with Vodamoan seemingly incapable of doing anything about it.

          Then one day, the congestion hit our leased line service - which has an SLA. At first they said "can't fix", at which I fired off some "fairly strongly worded" emails to several contacts, next morning it was fixed - and coincidentally, so were all the FTTC connections.

          Turns out, were on part of their "legacy" network that they don't want to spend a penny on before they get rid of it - and for some reason we'd been sold connections using this network. With the extra traffic, one link in one of their network centres was clearly congested - and it took us waving an SLA in their face before anything happened about it.

          We'll probably leave at some point. The only thing keeping us with them is the public IP space and the PITA of changing that - we provide a lot of hosted services to our customers. But since they've said that "some time" we'll have to use new IPs, that'll force us to renumber and then we might as well shop around.

          Yeah, so Vodamoan got their backhaul, customers got the sh*t end of the stick.

      3. Doctor Syntax Silver badge

        "Imagine not having to actually pay for all that backhaul anymore across the country."

        Unless times have changed that wouldn't be allowed.

        1. Anonymous Coward
          Anonymous Coward

          re: wouldn't be allowed

          "Imagine not having to actually pay for all that backhaul anymore across the country."

          Unless times have changed that wouldn't be allowed."

          Wouldn't be allowed?

          In the same way as BT plc trading as BT Openreach aren't allowed to treat other parts of BT plc (eg. BT plc trading as BT Wholesale) any different than they do any other player in the business?

          That'd obviously work then.

  2. Anonymous Coward
    Anonymous Coward

    All very well talking tough

    But what will Ms White do if the EU rubber stamp the deal, perhaps with a few tiny caveats? OFCOM have been toothless for years, so my hopes aren't very high.

    1. Anonymous Coward
      Anonymous Coward

      Re: All very well talking tough

      It's not Ofcom's call to make. The CMA will perform the market tests that determine if the merger adversely affects competition. Ofcom can them impose conditions if they can show that the new entity has significant market power (SMP) and that the condition is necessary to prevent that SMP being used to the detriment of customers.

      1. Roland6 Silver badge

        Re: All very well talking tough

        > The CMA will perform the market tests that determine if the merger adversely affects competition.

        I thought they did that last year and passed it up to the EU for their consideration...

        I'm not sure where Ofcom actually sit in all of this and whether or when they may be asked to present to the EU investigation. But given the EU will decide on the reduction from four to three mobile operators in France before they decide on the UK's 3/O2 merger, I suspect the outcome of the UK case rides more on the French decision than on Ofcom's submission.

        1. Charlie Clark Silver badge

          Re: All very well talking tough

          I'm not sure where Ofcom actually sit in all of this and whether or when they may be asked to present to the EU investigation.

          Neither do I. Then again, I don't really know what they do anyway. This sounds like an attempt to be relevant.

    2. Roland6 Silver badge

      Re: All very well talking tough

      So what has actually caused Ms White to speak out now or rather reiterate what she was saying last October? There hasn't been an official Ofcom news release on the matter.

  3. Downside

    Three versus the charity that is BT?

    The thought of Three bringing some sanity to O2's offers, whilst bringing wider 4G availability to my phone was quite exciting, so thanks for raining all over that prospect, Ofcom.

    Happily used my phone in Denmark, Eire and the US of A without worrying because of the unrivaled roaming prices offered by Three, and she thinks bringing this to more subscribers is a bad thing?

    In the US, cost of phoning a US number, 19p a minute on Three. I think the best I found was £1.49 on other networks.

    1. paulf
      Facepalm

      Re: Three versus the charity that is BT?

      You're assuming that with Three acquiring O2, thus reducing their competition from three incumbents to two, they would continue to offer the roaming deal they do now. As mentioned above they're already forcibly kicking people off the old unlimited data tariffs. The point is with reduced competitive pressure from the resulting smaller oligopoly prices would rise. Also there would be significantly less incentive for Three to act as the challenger brand, as it has since it won the "reserved for a new entrant" biggest chunk of 3G spectrum in 2000, as it would go from the smallest operator to the biggest.

      I can remember a time when international calls on Orange mobiles were 20% less than BT landlines (sometime around 1999). I wonder how that offer went? If you want to see what happens to the market when two mobile operators merge check out EE's creation - capacity/coverage reduced through the network rationalisation and prices rising.

  4. tiggity Silver badge

    Easy fix

    Ban any mergers until everywhere has coverage from at least 1 network - none of these signal "dead zones" where not even a 999 call is possible.

    As the networks only seem keen on low hanging fruit approach to coverage, it will be absolutely ages until countrywide coverage possible so mergers kicked into the long grass. The operators like to shout about 99% of the population covered, but less keen to mention that is due to targeting areas of high population density, and if you happen to be out on a remote walking holiday in a scenic but sparsely populated area of the UK then mobile signal from any operator is likely to be non existent.

    1. Anonymous Coward
      Anonymous Coward

      Re: mobile signal from any operator is likely to be non existent.

      "if you happen to be out on a remote walking holiday in a scenic but sparsely populated area of the UK "

      Not just that, how about (e.g) the M6/M56 route from Birmingham to Chester? I realise this is probably irrelevant because both these places are significantly outside the M25, but it's a route I do frequently these days and, once outside Greater Birmingham, there's no worthwhile 3G (O2 or EE) and there are plenty of places where even good old GSM struggles.

      Competition isn't working in the consumer's interest here.

    2. thesykes

      Re: Easy fix

      a "mobile signal from any operator is likely to be non existent." is probably the main reason "to be out on a remote walking holiday in a scenic but sparsely populated area of the UK"

    3. Andrew Jones 2

      Re: Easy fix

      While there are of course a number of reasons for mobile coverage blackspots - one of the biggest ones is because people say "you can't put a mast there - it will spoil the view" and "you can't put a mast too close to people because it will cause cancer" - and then of course these very same people complain bitterly that the mobile provider they are with has terrible coverage anywhere they want to use it.......

      1. alpine

        Re: Easy fix

        " people say "you can't put a mast there"

        BT of course don't have that problem because all those nice telegraph poles, which they own, are already everywhere. Ideal for cellphone or wifi repeaters. That's why it is very dangerous to encourage their monopoly to extend itself into the mobile arena.

        1. Anonymous Coward
          Anonymous Coward

          Re: Easy fix

          "all those nice telegraph poles, which they own, are already everywhere."

          Not only are they already everywhere, they've already got connectivity back to the operator's core network at a near-zero marginal cost to set up and operate. That's something not available to mobile operators outside the BT plc empire (as Vince has already noted).

          Not that BT plc would ever be thinking about that, or be allowed regulatorily to do that, just the same as BT wouldn't be allowed to repurpose their customers home broadband routers for barely-managed local WiFi access points. What, they were ? What the F is going on at Ofcon?

          1. Roland6 Silver badge

            Re: Easy fix

            Not that BT plc would ever be thinking about that, or be allowed regulatorily to do that

            Not sure just what the formal regulatory framework is that now constrains BT is. I suspect there really isn't one, everything depends on whether BT decides it is commercially viable and whether any of Sky/TalkTalk et al will go crying to Ofcom.

            As for repurposing home routers, well everyone wants in on that game, remember all the talk a few years back about LTE picocells...

          2. Doctor Syntax Silver badge

            Re: Easy fix

            "Not only are they already everywhere"

            They're not. They're in areas where there are houses needing a connection. Even if there was a femtocell on every post (and can you imagine anything bigger being allowed?) where there are no houses there'd still be no coverage.

            1. Anonymous Coward
              Anonymous Coward

              Re: Easy fix

              "if there was a femtocell on every post"

              Is anybody asking for that?

              "where there are no houses there'd still be no coverage."

              That's fine. The point is, where there are connected premises, there could be coverage that doesn't exist today, which would be a significant improvement on today's situation. Incremental improvements would be possible too - e.g. maybe a few cells alongside roads, where there aren't actually connected premises, just an existing BT cable.

              Where's the big problem, really?

        2. Anonymous Coward
          Anonymous Coward

          Re: Easy fix

          "BT of course don't have that problem because all those nice telegraph poles, which they own, are already everywhere. Ideal for cellphone or wifi repeaters. That's why it is very dangerous to encourage their monopoly to extend itself into the mobile arena."

          Telephone poles aren't tall enough to host cellular equipment. The propagation would be so inefficient you'd need one on every pole. In rural areas the poles are often owned by the electricity companies and BT rents space on them.

          But - my question is this - if your suggestion was true and BT could provide rural coverage very cheaply by using poles it owned - why would that be a bad thing? It seems peculiar to complain on the one hand that rural coverage is poor and then with the other point to a potential means of improving the situation as the perfect example of why it mustn't be allowed to happen.

          If rural coverage is going to improve there has to be a cheaper way of doing it because clearly no operator can afford to do it today. If a new owner of a cellular telco has a trick up its sleeve to roll out rural coverage isn't that generally a good thing?

      2. Anonymous Coward
        Anonymous Coward

        Re: Easy fix

        Please stop defending the indefensible.

        "one of the biggest ones is because people say "you can't put a mast there - it will spoil the view" and "you can't put a mast too close to people because it will cause cancer""

        Citations welcome. The circumstances in which an application for a mast can be refused are, as far as I understand it, relatively small. My citation [1]. Not to mention the fact that whilst objections may be valid in some areas, there are plenty of places (I cite the M6/M56 corridor again) where base stations would surely be welcome.

        On the other hand, as has been noted, the return on investment in extra coverage may or may not be sufficeint to be of interest to the network operators, without sufficient additional motivation.

        In some parts of the country, in-country roaming to another operator's network might have been part of the solution, but even that wasn't acceptable to the operators for some reason [2], so we got the near-invisible Mobile Infrastructure Project instead [3].

        Joined up thinking. Wouldn't it be great. Joined up mobile infrastructure? Not allowed.

        [1] http://www.thisismoney.co.uk/money/news/article-3337665/02-chief-exceutive-Ronan-Dunne-says-Government-mobile-revolution.html (28 Nov 2015)

        Public opinion has undergone a dramatic shift when it comes to mobile phone masts, according to Ronan Dunne, chief executive of O2 Telefonica UK.

        Once everyone was opposed to new masts springing up across the country. Now, he argues, we can’t get enough of them.

        ‘Five years ago I gave evidence at the Commons Select Committee and at that time the vast majority of MPs who wrote to me about mobile coverage were asking us not to put a mast up because somebody in their community did not want it. Now almost 100 per cent of the MPs who write to me are contacting on behalf of constituents who want better coverage in their area,’ he declares.

        (continues)

        ****************************************************

        [2] http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/telecoms/11241820/Mobile-operators-agree-coverage-boosts-to-avoid-national-roaming.html 19 Nov 2014

        Britain’s mobile operators will offer to invest tens of millions of pounds to boost rural coverage and eliminate so-called ‘partial notspots’, The Telegraph can reveal.

        They will make the proposals to the Government in an attempt to head off new laws that would force them to allow non-subscribers to use their networks, known as a 'national roaming' regime.

        The country’s four network operators – EE, O2, Three and Vodafone – have agreed they will offer to build new masts that would increase their voice and text coverage to 89pc of Britain’s landmass, according to several sources.

        Each of the four operators currently provides a signal in only around 80pc of the country, although that covers almost all of the population.

        The places where only one or two networks are available are known as partial notspots and are estimated to affect more than a million people who live there and tens of millions who visit and find themselves cut off.

        (continues)

        *********************************************

        [3] http://www.theregister.co.uk/2015/09/18/140_years_complete_150m_mobile_mast_rollout_programmedcms/

        and e.g.

        http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/telecoms/11952888/Yorkshire-village-with-a-mobile-not-spot-battles-80ft-mast.html 24 Oct 2015

        [...] The Coalition announced it would fund new masts in sparsely populated areas with a £150m subsidy more than four years ago. It appointed Arqiva to build them more than three years ago,

        [...] At the last count only six masts had been built, out of an original list of 600 that were meant to serve the up to 0.4pc of premises that receive no coverage from any of the four main operators.

  5. Anonymous Coward
    Anonymous Coward

    How will driving mobile operators to bankruptcy help? They're trying to merge because the price the market has reached in the UK is too low to satisfy investors. Adding to their costs won't help - you'll just see three or O2 sold to an asset stripper who will close down the business and sell off the network components to others.

    1. Anonymous Coward
      Anonymous Coward

      hmmm

      "the price the market has reached in the UK is too low to satisfy investors. "

      How did that happen then?

      1. Loud Speaker

        Re: hmmm

        How did that happen then?

        The investors have reached a new level in greed.

    2. Roland6 Silver badge

      you'll just see three or O2 sold to an asset stripper who will close down the business and sell off the network components to others.

      Well given that Telefonica want to sell O2-UK to gain capital so it can pay off its debts, the question has to be asked what happens if the Three/O2 takeover doesn't happen, particularly given we are lead to believe the only other party that was interested in O2-UK prior to Three's offer, was BT?

      So the EU's dilemma will be more of what is more important: retaining strong competition in those markets Telefonica still operates in or possibly protecting the UK mobile market - I think the answer is obvious, given they okay'ed the Three/O2(IRL) merger...

      The other related question is just what exactly assets does O2-UK have other than it's customer base? I can see Telefonica giving O2-UK customers inducements to transfer to Three, if it means they get a 'commission' for each transfer, where total commission payments could be as high as £10.2Bn...

      1. ARGO

        >The other related question is just what exactly assets does O2-UK have other than it's customer base?

        Ten thousand or so cell-sites - even though they are now mixed up the Cornerstone joint venture, the site agreements still reside with O2 and each one is 5-6 figures just for the legal rights and the physical tower. A billion perhaps?

        A lot of network kit. Although rumour has it Telefonica hasn't been investing much in that recently so it may be a bit *vintage*. Resale value likely to be limited though.

        A lot of handsets still in contract. Assuming the average user is halfway through their contract and an average handset price of £200 = £100 per user in outstanding handset debt. A couple of billion across the 25 million users?

        Spectrum. Somewhere in the 2-5 billion range based on recent auctions.

        A brand. I've no idea how people value such things (think of a number?), and attempting to do so on el Reg would only invite derision ;-)

        1. Roland6 Silver badge

          Re: O2-UK Assets @Argo

          Agreed, I posted before thinking to any great depth as to how much infrastructure O2 might still have in it's own right. However, I think much can be transferred to Three without there being an actual merger, with much of the network equipment also disappearing into a joint venture. Which raises the question at what point does O2 cease to be a MNO and become an MVNO? and is it in Ofcom's powers to do anything about it?

          With respect to spectrum, I suspect Ofcom won't like it if the legal entity O2 retains the spectrum allocation but shares it with others in the Cornerstone joint venture...

          I think much will depend on just how much Telefonica want to dispose of O2-UK, and how much Three just want infrastructure, spectrum and subscribers.

          1. paulf

            Re: O2-UK Assets @Argo

            I suspect OFCOM could do something about it (assuming they'd want to which is another matter). Any large scale attempt to induce customers to move to a competitor would attract OFCOM's attention - they couldn't manage a mass NDA of that kind!

            A joint venture (like Cornerstone or MBNL) would have to be approved by OFCOM so there wouldn't be any setting up a joint venture to hold Three UK and O2 UK's respective businesses. This joint venture aspect is what makes the Three+O2 merger particularly difficult. The merged entity, should it be permitted, would have to extricate itself from either Cornerstone (the O2+Voda network) or MBNL (the Three+EE network). Would a Cornerstone+MBNL be permitted by OFCOM (if approved by Voda/EE respectively)? Probably not but they permitted Arqiva to have a monopoly on broadcast masts when they were allowed to acquire NGW.

            Ultimately their value is in their spectrum licenses. A mobile operator with spectrum, but no license to use it, isn't! If OFCOM detects attempts to subvert a blocked merger (or get around imposed conditions) they'll find a way to put them in breach of their license conditions. A lack of spectrum suddenly makes what's left worth significantly less - especially as any physical assets would be shifted at firesale prices.

            I can't see the "we want to exit the UK and Three is the only buyer" argument to hold much water with regulators.

        2. ARGO

          I forgot a few bits:

          50% of Tesco mobile. 4 million subs? Must be worth £100m. And an obvious candidate for independence to placate the EU.

          Weve mobile adverts business. Must have some value. I guess.

          WiFi hotspots business. Worth £100m or so?

          Smart metering connectivity contract / M2M business. Another few £100m....

          It all adds up. Or perhaps gets lined up for divestment....

  6. Anonymous Coward
    Anonymous Coward

    The "elephant in the room" of fix line phones, and the "elephant in the room" of mobile phones get together and nothing is said.

    The MICE get together and DOOM!!!!

    Sharon White is talking out of her arse; an arse most suspect will be warmed by a BT/EE directorship when she leaves OFCOM.

  7. I am not spartacus

    "Writing in the Financial Times, White said: "[We] are concerned that the smallest mobile network, Three proposes to become the biggest by acquiring its rival, O2.

    That statement - or, at least, that part of the statement - is unfortunate, in that it suggests that White doesn't really understand the problem. No part of the problem is that the smallest is intending to become the largest by spending money.

    "The combined group would control more than four in 10 mobile connections.

    That is closer to the actual problem: the biggest would be too big, and there would not be enough consumer choice in the market.

    "She said the regulator has put forward those arguments to the European Commission and outlined its concerns. Ofcom is also worried that shrinking the number of mobile operators from four down to three would hike up prices for consumers.

    If you take a hardline, economies-of-scale, point of view, the fewer MNOs the better. If you take a hardline choice-is-everything point of view, the more MNOs the better. Somewhere in the middle, there has to be an answer. Does White have a point of view on this, or does she just blow in the wind with whatever point of view the EU imposes or what happens to be convenient for her more local masters at the time? I get the impression that she just feels too threatened to say.

    There is also the possibility that if MNOs are forced to offer decent wholesale rates to MVNOs, the question of how many MNOs there are becomes less relevant (particularly as the number of MNOs decreases, they get close to monopoly power), but it is probably a bit interventionist for this lot.

    1. Roland6 Silver badge

      Re: in that it suggests that White doesn't really understand the problem

      @I am not Spartacus

      I would agree there is an issue here, the other statement I noted was her casual linkage of revenue to investment, whilst not understanding that consolidation is a natural consequence of competition.

      "Last year, UK mobile companies generated £15bn of revenue. They have been investing billions to roll out 4G technology, while maintaining cash flow margins above 12 per cent. Competition, not consolidation, has driven investment,"

      What is interesting is following events in France where some of those who last year opposed the 4 becoming 3, now think that 3 might create a more stable market due in part to the uncertainty and distraction being caused by having the 4th up for sale for so long, which if it continues there is a real possibility that the 4th will fall behind on infrastructure investment etc. and so by default there will be 3...

  8. Anonymous Coward
    Anonymous Coward

    Great point I don't think the CMA understood what mobile spectrum is and how useful it is.

  9. jerehada

    What jumped out was that she used revenue and not returns on investment or bottom line. If you look at all the operators bottom lines, given the level of investment, they are abysmal. If you look at 3s investment and returns its madness. I wonder if she is prepared to invest in mobile operators because its a futile business to be in.

    I would have thought as an economist she would have had a different view regarding economic profits attracting investment.

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