Mobile network mega merger could mean higher customer bills in Britain

Both Three and O2 released statements saying that a merger would benefit consumers

Millions could be facing bigger phone bills because of a proposed £10bn merger, experts have warned.

They said the announcement yesterday of the planned takeover of the O2 network by Three, via its parent company, the Hong Kong conglomerate Hutchison Whampoa, could change the UK mobile market dramatically.

If the deal is agreed, Three, which currently accounts for the users of about 10 million UK mobiles, would acquire O2’s 24 million-strong customer base, propelling it from the market’s smallest underdog to its biggest player.

This, analysts said, might tempt Three to abandon its “challenger tactics” of undercutting bigger rivals and to increase prices and profit margins instead.

The merger would also see the number of UK mobile operators fall to three; the regulator, Ofcom, sees four as the minimum for providing healthy competition and fair prices.

Both Three and O2 released statements saying that a merger would benefit consumers, but Richard Lloyd, executive director of the consumer group Which?, warned: “Fewer players in an essential market like telecoms is rarely good for consumers.

“This will need careful consideration by the competition authorities to ensure consumers are protected from higher prices or poorer service.”

The British mobile phone market is one of the most competitive in Europe. This means, however, that UK operators have profit margins of about 20 per cent, compared with the European average of 30 per cent.

Dario Talmesio, of the telecoms consultancy Ovum, said that with Three possibly changing tactics and with competition reduced, companies might decide to push profit margins closer to the European level.

He said: “Generally, a reduction of operators would lead to a rise in prices. If on top of that, the consolidation is done by a company that has traditionally played the challenger strategy and undercut its rivals, then a price rise becomes even more likely.

“So yes, we expect to see consumers paying more.”

He added that a year after Hutchison acquired Orange in Austria, the regulator there was complaining that average Austrian mobile phone bills across all networks had risen by between 6.6 per cent and 11 per cent.

Not all analysts, however, said the merger would automatically mean higher prices for UK mobile users. Ernest Doku, telecoms expert at the comparison site uSwitch.com, said: “Three acquired O2 Ireland in the summer, and we haven’t seen price rises there. It’s still an incredibly competitive market here. You can’t simply ratchet up prices without consumers getting concerned and finding it relatively easy to switch networks.”

He added that with BT in talks to acquire EE, customers may start to obtain better deals on so-called “quad play” packages of broadband, landline, mobile and pay TV.

Hutchison Whampoa said it expected its negotiations with O2’s Spanish owner, Telefonica, to last “several weeks”. It would not need approval from Ofcom because it makes most of its money outside Britain. Ofcom would submit its views, but the decision would rest with the European Commission, which has already approved a reduction of operators from four to three in Ireland and Austria.

The merger would also make the tycoon Li Ka-shing, the chairman of Hutchison Whampoa and reputedly the richest person in Asia, one of the biggest foreign investors in the UK.