European General Court annuls ban on proposed Three UK/O2 merger

Just weeks after Telefónica and Liberty Global agreed to a merger of its O2 and Virgin Media businesses in the UK, the General Court of the European Union has annulled the 2016 decision by the European Commission (EC) to block the proposed acquisition of O2 by CK Hutchison business Three UK.

The court regarded the EC’s 11 May 2016 judgment as not having proved, to the requisite legal standards, the effects to which Three’s proposed acquisition would have on service prices and quality of services in the UK mobile market, and that the EC failed to show that the effects of the concentration on the network-sharing agreements and on the mobile network infrastructure in the UK would constitute a significant impediment to effective competition.

Three’s acquisition would have seen the UK’s mobile market reduced to itself and BT-owned EE and Vodafone. The EC considered that the reduction from four to three competitors would probably have led to an increase in prices for mobile telephony services in the UK and a restriction of choice for consumers.

It said the acquisition was also likely to have a negative influence on service quality, hindering the development of mobile network infrastructure in the UK. The EC also judged that it would have reduced the number of mobile network operators wanting to host other mobile operators on their networks.

Three subsequently brought an action before the General Court of the European Union seeking annulment of the EC decision, arguing that the EC’s approach to reviewing the proposed merger, and European telecoms mergers more broadly, was guided by what Three said was a misconceived default view that European telecoms markets were better served by having a minimum of four mobile network operators in each EU member state, which the UK was at the time.

It said such an approach ignored market realities, what it asserted was the “clear evidence” of successful market consolidation in Europe and across the world. It also argued that there were “very significant” efficiencies in terms of increased investment, network improvements and consumer benefits that could be achieved from mobile mergers.  　

Explaining the reasons for its judgment, the General Court said that in the first regard, after clarifying the scope of the change made by the Merger Regulation, as well as the burden of proof and the standard of proof in relation to concentrations, it found that the EC’s application of the assessment criteria of the so-called “unilateral” (or “non-coordinated”) effects – namely, the concept of “important competitive force”, the closeness of competition between Three UK and O2 and the quantitative analysis of the effects of the concentration on prices – was vitiated by several errors of law and of assessment.

It also noted that the mere effect of reducing competitive pressure on the remaining competitors would not, in principle, be sufficient in itself to demonstrate a significant impediment to effective competition in the context of a theory of harm based on non-coordinated effects.

In the second regard, the General Court found that the EC had failed to show that the effects of the concentration on the network-sharing agreements and on the mobile network infrastructure in the UK would constitute a significant impediment to effective competition.

It also ruled that the effects of the concentration on the wholesale market were not found to be sufficient to establish the existence of a significant impediment to effective competition.

Commenting on the judgment, CK Hutchison said that although it welcomed the decision, the EC had acted as a brake on, and in a number of cases had prevented, what it regarded as “vital” industry consolidation in Europe, which would have resulted in significant new investment, innovation and benefits for European consumers and industry.

It added that following the court’s findings, the EC needed to revisit “fundamentally” its approach to merger reviews in this key sector.