Three overturns the veto on its planned merger with O2. Five reasons why it’s not a hollow victory

A fascinating turn of events has occurred that should get every operator in Europe thinking about its future plans, and the plans of rivals.

Last week CKH, the owners of Three UK, successfully overturned the EU Competition Commission’s veto of its proposed 2016 merger with O2.

We can only speculate that behind Three’s appeal there was a plan to win a reversal and try again. But bringing over Robert Finnegan and Elaine Carey from Ireland, both veterans of the Three O2 merger there, strongly hints that this was the plan.

But it’s irrelevant now that O2 has moved on to strike a deal with Virgin Mobile. Right? A hollow victory if ever there was one.

Wrong. It’s worth opening the bonnet on this as it might not be as meets the eye. Here are five reasons why I think it could turn out to be a positive move for the European telecoms market AND for CKH and Three.

Even though the political context has changed significantly, Three has not really changed its market position so growth by acquisition could still be its plan. The new ruling should make it easier to gain approval for any subsequent acquisitions or mergers

That’s important, because the ruling suggests, to me at any rate, that there will only be limited regulatory intervention in the O2 / Virgin merger. An overturned veto and a strong precedent from EE / BT are enough to argue that O2/Virgin goes ahead. Not great for Three directly but it will cause more market moves which Three could take advantage of.

This will have a profound impact on EU markets where operators have either pulled back from consolidation fearing a veto or faced the dreaded regulatory remedy of increased competition through mandated MVNO wholesale agreements. CKH operate in a number of European markets so they stand to benefit from this.

Closer to home it will also give CKH confidence to consider more UK acquisitions. People often forget that Three (the fourth UK Operator) is part of the huge and very well funded CKH group that owns mobile operators with 93m customers worldwide, not to mention ports, retailers and utility suppliers, and has a turnover in excess of $20bn. Maybe we will see them starting to flex their financial muscles in the UK soon.

As highlighted in my blog on the O2 & Virgin merger just two weeks ago, Three has a real issue if/when the merger goes ahead. It will be the only UK MNO with no fixed assets and this puts it at a distinct disadvantage for both a move into the business market or for a play for the home where it could leverage fixed, mobile and TV. There is a sound case for Three addressing that problem through acquisition or sale.

Five quite convincing arguments to say it’s not a hollow victory after all. Instead it could be an enabler, which will see Three move into acquisition mode and buy into the TV and broadband market before its competitors can blink. There’s even a possibility that an agile TV/ broadband provider will buy into Three.

All options are on the table. The question is who will move first?

If you think you need to get your leadership team re-evaluating its strategy then pick up the phone. I’m here to help size up the options and forge a plan.

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James Gray

Managing Director at Graystone Strategy

James has over 20 years of experience working in the telecoms and retail industries. He is an expert in subscription-based business models, CRM, direct and indirect channel management and major proposition development and launches. He has held a number of Marketing Director and Consumer Director roles.