Ofcom boss warns 02-Three merger could be bad for customers

Meanwhile, Vodafone is the latest telco to call for BT to be forced to spin out Openreach.

by Rachel Savage
Last Updated: 01 Feb 2016

It’s all guns blazing in telecoms right now. As the industry undergoes a once-a-decade regulatory review, companies are falling over themselves to offer ‘quad-play’ (TV, landline, mobile, broadband) to customers, heralding a wave of mergers and acquisitions.

The BT-EE and O2-Three tie-ups are both under intense scrutiny by competition authorities. And last night, Ofcom boss Sharon White warned consolidation is likely to be bad for customers.

‘I am concerned that the UK could end up with more concentrated markets that lead to higher prices and reduced choice for consumers, without the promised boost to investment and innovation,’ she said at a speech at the London School of Economics.

‘Mobile operators argue that they need consolidation to boost revenues and increase efficiency,’ the regulator’s chief executive said. ‘Consolidation can in theory have benefits - improving economies of scale and making it easier to finance investment. However, Ofcom's experience is that competition, not consolidation, drives investment and delivers low prices.’

Telcos will be grateful Ofcom doesn’t have veto power over mergers and acquisitions. But the communications regulator can tinker with rules to favour smaller entrants and in the past made sure there were four operators through its control of the spectrum auctions.

White is also providing evidence to the European Commission, which is reviewing the O2-Three merger. Last week, commissioner Margrethe Vestager said there was evidence that suggested reducing the number of mobile competitors from four to three increased prices without also raising investment.

Meanwhile, the UK’s Competition & Markets Authority wants to investigate the deal instead of the EC, which needs to decide by the end of the month whether to hand over the task. Whichever side of the channel the probe is conducted on, regulators seem to have the bit between their teeth over the tie-up.

On the broadband battlefield, Vodafone has finally joined the gang of companies demanding Ofcom force BT to spin out its internet infrastructure division Openreach (while also haranguing the CMA to block its acquisition of EE). It’s been fairly quiet so far, letting Sky and Talk Talk wage the war of words. But, in a submission to Ofcom today, it will argue BT has netted £6.5bn in ‘excessive profits’ from the unit in the last decade.

‘We want to see a separate Openreach whose business is selling network connectivity and access for all," Vodafone’s regulatory affairs boss Matthew Braovac told the FT.

In short, BT’s rivals are claiming it discriminated against them when providing wholesale access to its broadband network. BT has consistently argued only it has pockets deep enough to fund the investment needed to keep upgrading the UK’s internet speeds.

But with the consultation closing today, the ball is now in Ofcom’s court as it decides on the regulatory framework that will govern the sector for the next decade. As the telcos fire empty salvos at one another, White must be feeling pretty powerful right now.

Want to hear from Sharon White in person? The Ofcom boss will be speaking at MT’s Inspiring Women conference in London on November 19, alongside other speakers including DJ Lauren Laverne, Winser London founder Kim Winser and Isuzu Truck honorary chairwoman Nikki King. Check out the great programme and buy tickets here.

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