Ofcom worried UK telecoms mergers risk undermining competition

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The British communications regulator has expressed alarm at the number of mergers in the telecoms sector, saying they risk undermining competition and forcing up prices for consumers.

In a reshaping of the British telecoms market, more than £20bn of mergers and acquisitions are under discussion, with BT set to acquire EE, the UK’s largest mobile group, and Three to merge with O2.

“If the current merger wave continues, there are risks to consumers and businesses who have enjoyed one of the most competitive markets of recent years,” Sharon White, Ofcom chief executive, said in a speech.

Ofcom is also concerned about evidence suggesting that landline and broadband prices have already been rising in the UK, she added.

In her clearest remarks on competition policy since taking over at Ofcom at the start of the year, Ms White argued against further telecoms consolidation, saying there was “no relationship [with higher] investment”. Four mobile operators were a “competitive number” for the UK market.

Ms White highlighted a range of reasons why mobile users in Britain could be worse off with fewer alternatives to choose. Her words are likely to worry executives in the sector as they head into negotiations with competition authorities in the UK and Brussels.

Similar deals in Europe have been cleared, although recent comments by the European antitrust authorities have also suggested a hardening of attitudes against deals because of worries over the impact on consumers.

Executives argue that these deals lead to scale that helps them invest in better networks. But Ms White said there was “evidence that consumers may be paying the price of mergers” elsewhere in Europe. BT may also have an incentive to favour EE over other mobile operators in providing network services, she said.

In her speech, she said she was concerned the UK could end up with “more concentrated markets that led to higher prices and reduced choice for consumers, without the promised boost to investment and innovation”.

“This is an urgent question. Once competition slips away, it is hard to re-establish especially in telecoms where barriers to entry for new firms are high.”

Ofcom has no direct power over approving or rejecting mergers but can heavily influence competition in the market through policies supporting smaller groups and favouring new entrants. It has in the past ensured that there are four mobile operators in the UK through rules governing spectrum auctions.

Ms White called for improved powers to help regulate the market and protect consumer interests. “With a change in the framework we could do more to facilitate the entry of new operators, keep low price deals on the market for longer or require companies to give up spectrum.”

The regulator said she was concerned some prices had already gone up. “There are signs in recent months of rising prices for landline and broadband customers, without the apparent justification of higher costs or improved service. BT, Sky, TalkTalk and Virgin Media have all raised line rental prices this year ... we are watching these developments in the market closely.”

Ms White pointed to a rise in mobile prices by 28 per cent in Austria following similar mergers, with “light users” such as older people, children and teenagers the hardest hit.

“Ofcom’s experience is that competition, not consolidation, drives investment and delivers low prices,” she said.

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