In Depth

Three owner makes final pitch to win approval for O2 merger

Sky and Virgin could take big chunks of network capacity, while enlarged firm would invest in infrastructure

Three's Hong Kong-based parent company, Hutchison, has made its final pitch to European regulators in an effort to win approval for a £10bn merger with O2.

The deal, which would create the largest mobile firm in the UK, ran into opposition from Ofcom, which took the unprecedented step of publicly lobbying for it to be blocked. The final decision rests with the European Commission, an opponent of such tie-ups in the past, which has extended the deadline for its final verdict to mid-May.

The delay follows Hutchison submitting its latest – and last – offer of concessions to ease competition concerns.

The Daily Telegraph says the company has signed a deal with Sky that would see the latter paying around £2bn to take 20 per cent of the capacity on the combined network, while a more tentative agreement with Virgin Media would result in a further ten per cent being ceded. Both would be handed ten-year contracts to allow them to invest in building up market share.

Hutchison has also pledged to sell O2's 50 per cent stake in Tesco Mobile and to continue to invest heavily in its mobile masts infrastructure joint venture with Vodafone until at least 2017, when it may seek to sell to a third party.

There was no word on previously mooted plans to maintain Three and O2 as separate entities if the transaction gets the green light.

This may still not be enough to convince the regulators, who have expressed particular concern about the loss of one of the four UK infrastructure networks, the Financial Times notes. Notably, the plans fell short of offering to sell capacity and masts to help a rival set up a fully fledged replacement fourth operator.

There will also likely be complaints from Vodafone that despite assurances, the investment in its masts business will suffer, says the Telegraph, as Three-O2 will also co-own the second infrastructure joint venture in the UK market, between O2 and BT.

Vodafone could demand that Hutchison pulls out of their venture and pays "billions of pounds in compensation".

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