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CK Hutchison/O2: 'Four networks' dogma risks one giant and three hopeless dwarves

What good is that?

Analysis Three parent CK Hutchison is so keen to get its merger of O2 approved by Brussels, it’s willing to give up infrastructure and spectrum that a new entrant could use to create a fourth network.

Brussels (and Ofcom) remain dead set on the UK having four major networks, rather than regulations that beef up competition from Virgin and other insurgent mobile virtual network operators (MVNOs).

The FT reports that Hutch is prepared to give up “close to a third of capacity of the merged network” permanently to rivals. The capacity would allow super MVNOs to challenge the remaining three networks on a much stronger basis.

This is a further concession. In 2014 Hutch agreed to divest a third of its capacity in Ireland to secure a merger with O2, but only for five years, extendible to 10.

And there’s a lot to be said for stimulating competition by beefing up MVNOs, rather than dogmatically insisting on four networks. Nimbler virtual operators are better placed to pass on cost savings than major networks, and can leverage their existing footprint and other marketing channels. For example, last year Carphone Warehouse launched a 4G MVNO called iD which had very aggressive tariffs, but also an attractive “free roaming” option. Carphone already has the High Street presence; it's where people go. It doesn't need to spend a fortune attracting people to its stores.

Britain’s problem isn’t that prices are too high, it’s the spotty coverage, a sign of weak investment. And if Brussels and Ofcom’s mouthy chief exec Sharon White have their way, it could be a market with one dominant player, BT, and three dwarves, with the three unable to improve their networks much, and BT able to indulge in regulatory arbitrage.

BT still has a dominant influence on DSL broadband - Ofcom shied away from making it shed Openreach - and it's now also the UK’s biggest mobile operator as EE. BT has broken the Sky monopoly on top tier football, and can offer quad play. While the City doesn’t think BT can keep all four balls in the air, ask the big players in telecoms or media how happy they are with the new giant. Virgin and Sky are anxious not to be left behind. Tesco, which has a 50:50 JV with O2 for its mobile network, is desperate to divorce Telefonica and hitch itself to new capacity on the merged Hutch-O2.

As the Telegraph's Chris Williams notes, White and Vestager’s “four majors” model looks dogmatic, dogmatically set on those “four majors” and doesn’t seem to factor in the reality of a dominant BT. ®

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