O2 mobile phone network
Three's proposed takeover of O2 could threaten competition, Ofcom has said.Reuters

The proposed merger of telecom groups O2 and Three could threaten competition and result in a sharp increase in mobile phone bills, Ofcom's chief executive Sharon White said today (1 February 2016). In March 2015, Hutchinson, which owns Three, and Spain-based Telefonica, which owns O2, agreed on a £10bn deal, before the Competition Market Authority (CMA) in October asked the European commission to review the proposal.

Should the proposed merger go ahead, the number of mobile networks in Britain would be reduced to three – the remaining two being EE and Vodafone – while the newly formed company would control two in every five mobile connections in the UK.

"We are concerned that the smallest mobile network, Three, proposes to become the biggest by acquiring its rival O2," White wrote in the Financial Times. Many of our concerns relate to competition between operators who own the networks on which mobile phones rely. Only these four companies can make your mobile signal faster, more reliable and widely available. Establishing a new mobile network might be one answer, but this would take time, and considerable investment."

White added the communication watchdog was concerned by the potential disruption to the existing UK network arrangement and by the prospect of higher prices for businesses and consumers.

"While the merger is reviewed, Ofcom will keep working to promote healthy rivalry between operators," she said. "We want UK consumers and businesses to enjoy fair mobile prices and cutting-edge products for years to come. For that we need strong competition: the basis of protection and the incentive to progress."

Last week, Three angered some of its customers after doubling the price its monthly Legacy tariff to £30, although the provider, which counts 8.8m users, said the increase was not related to its proposed takeover of O2.

Meanwhile, Ofcom's concerns were echoed by Richard Lloyd, the chief executive of consumer group Which?, who warned the proposed merger would limit choice and competition.

"​The UK telecoms regulator​ ​has confirmed​ our fears that this merger could reduce choice and competition in this market and result in significant detriment to UK consumers," he said. "We've written to the European Commission to set out our concerns and ask that they look carefully at claims that consolidation, rather than competition, will drive investment in the sector. Should this merger be cleared, it is essential that any remedies imposed by the Commission are more effective than those imposed in recent similar European mergers to ensure UK consumers are properly protected from price rises and poor customer service."