Antitrust M&A: 4 to 3 mergers might be back on the strategic table

Antitrust M&A: 4 to 3 mergers might be back on the strategic table

Recently the EU’s General Court[1] overturned the decision by the European Commission that blocked a proposed merger in the mobile telecom sector in the UK that would have reduced the number of mobile operators from four to three[2].

It is open to argument that this decision means mergers that were thought to be too difficult to get merger control consent should be reconsidered.  Only five blocked mergers, including the current case, have been successfully appealed since the Merger Regulation came into effect 30 years’ ago.  The Commission will likely put in place measures to ensure similar issues are more fully considered.  Whether the issues that arose in this merger are specific to the mobile telecom sector or have broader implications for other sectors will require full analysis.  However, there might be enough to ‘dust-off’ some strategic transaction thinking to see what might now be possible.

The Commission made three arguments in its decision.

1.The Commission argued that a reduction from four to three competitors, with the merged entity becoming the leader with 40% of the market, results in a reduction of competition in a market that is oligopolistic.  In particular, the merging parties being close competitors and with one of the merging entities being an important competitive force on the market, would probably have led to an increase in prices for mobile telephony services in the UK and a restriction of choice for consumers.

  • As regards the reduction of competition, the Court finds that the mere effect of reducing competitive pressure on the remaining competitors is not, in principle, sufficient in itself to demonstrate a significant impediment to effective competition.
  • As regards the Commission deeming one of the merging parties as an important competitive force in an oligopolistic market, the Court considered the Commission was wrong to conclude that this criterion could be applied even though the entity concerned did not stand out from its competitors.
  • As regards the assessment of the closeness of competition, the Court finds that, although the Commission established the merging parties are relatively close competitors in some of the segments of a market, that factor alone is not sufficient to prove the elimination of the important competitive constraints which the parties to the concentration exerted upon each other and therefore to establish a significant impediment to effective competition.
  • As regards price rises, the General Court considered that the quantitative analysis of the effects of the concentration on prices did not establish, with a sufficiently high degree of probability, that prices would increase significantly.

2.The Commission argued there would be effects to the structure of the market, specifically to the network-sharing agreements and on the mobile network infrastructure in the UK, that would constitute a significant impediment to effective competition.  The particular fact relevant here is that the four mobile operators operate in two pairs, each pair supporting one mobile network.  This does not reduce competition but does reduce costs.  However, the merger would have meant the merging parties were members of both networks, giving them an overview not afforded to the remaining competitors.

  • In the Court’s view, a possible misalignment of the interests of the partners in a network-sharing agreement, a disruption of the pre-existing network-sharing agreements, or even the termination of those agreements do not constitute, as such, a significant impediment to effective competition. The Court pointed out that the Commission had not undertaken the exercise of considering whether the merged entities would have resulted in a degradation of the network or the services offered over the network.

3.The Commission argued that the acquisition would have reduced the number of mobile network operators wishing to host other mobile operators on their networks (the wholesale market). In addition to the four mobile network operators, there are also several ‘virtual’ operators on the UK mobile telephony retail market, which use the infrastructure of the ‘host’ mobile network operators to provide their services to consumers in the UK. According to the Commission, the loss of one of the merged parties as an important competitive force and the ensuing reduction in the number of host mobile networks would have placed the virtual operators in a weaker negotiating position to obtain favourable wholesale access conditions.

  • The Court finds that neither the wholesale market share of one of the merged parties nor its recent increase justify its classification as an important competitive force. The mere fact that it had more of an influence on competition than its market share would suggest, is not sufficient to establish the existence of a significant impediment to effective competition, particularly as it was not disputed that its market share was small.

The Commission is analysing the Court’s ruling and has the right to appeal the Court’s ruling to the European Court of Justice, the highest EU Court.



[1] Case T-399/16 CK Telecoms UK Investments v Commission, ruling of 28 May 2020.

[2] Commission Decision C(2016) 2796 of 11 May 2016 declaring the operation incompatible with the internal market (Case COMP/M.7612 — Hutchison 3G UK/Telefónica UK).