Ofcom Signals Possible Setback for 02-Three Merger

By Rory Gallivan and Razak Musah Baba

LONDON--Consolidation among U.K. mobile telecommunications companies may not be needed to ensure adequate investment in the industry, according to the U.K. communications regulator--a possible setback for the proposed $15 billion merger between O2 and Three.

Ofcom Chief Executive Sharon White said in a speech at the London School of Economics on Wednesday that investment in mobile infrastructure is only likely to suffer when companies can't make an adequate return because competition is so intense.

"The evidence suggests this is not the situation in the U.K. mobile market, which last year generated 15 billion pounds ($22.8 billion) of revenue," she said.

Ms. White said the U.K. has benefited "for many years" from the existence of four or more mobile operators.

The U.K. mobile market is currently dominated by four operators; Spanish telecoms group Telefonica's U.K. arm O2, Asian conglomerate Hutchison Whampoa Ltd.'s Three, Vodafone Group PLC (VOD.LN) and EE.

Hutchison Whampoa in March agreed to pay Telefonica GBP9.25 billion for Three, plus a possible further GBP1 billion if targets are met.

Ms. White, who said Ofcom will be providing evidence to the European Commission as it examines the implications of the proposed merger, said studies suggest reducing the number of players from four to three "can lead to higher prices for consumers, but not more investment per subscriber."

She added: "We continue to believe that four operators is a competitive number that has delivered good results for consumers and sustainable returns for companies."

Telefonica declined to comment and Three didn't immediately comment.

(David Roman contributed to this article.)

Write to Rory Gallivan at [e-mail]; Twitter: @RoryGallivan

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

October 08, 2015 09:04 ET (13:04 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.