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EU court sends Hutchison’s EU veto challenge to lower tribunal

European telecoms companies faced fresh regulatory uncertainty on Thursday after the EU’s top court scrapped a lower tribunal’s decision to life a veto on Three UK’s 13-billion-pound ($16.9 billion) bid for O2 seven years ago, citing legal errors.

The case is closely watched by the telecoms industry as, although the deal has lapsed, its approval could make it easier for companies to forge mergers that reduce the number of mobile players in a country.

Orange and MasMovil’s planned merger of their Spanish operations, currently being investigated by the EU competition enforcer, is one such deal.

Three UK owner Hutchison is also trying to do the same, after last month agreeing a 15 billion pound merger of Three UK with Vodafone’s UK business – a deal set to be closely examined by British regulators.

Back in 2016, retired billionaire Li Ka-shing’s Hutchinson conglomerate had aimed to become Britain’s biggest mobile telecoms network operator by combining Three UK with Telefonica’s O2 to better compete against BT’s EE and Vodafone, but it ran into opposition from EU regulators.

EU antitrust enforcers said that deal, which would have reduced the number of UK mobile players from four to three, could push up prices. Hutchison subsequently challenged the EU veto.

The General Court in its 2020 ruling annulled the EU decision, raising the bar for regulators to block mergers that hinder competition and prompting the European Commission to appeal to the Luxembourg-based Court of Justice of the European Union (CJEU).

The CJEU on Thursday scrapped the General Court ruling and sent the case back to the lower tribunal.

“The General Court must rule once more on the lawfulness of the Commission’s prohibition of the acquisition of Telefonica Europe (O2) by Hutchison 3G UK (Three),” CJEU judges said.

“The General Court applied a standard of proof which does not follow from the Merger Regulation, as interpreted by the Court of Justice, and thus made an error in law.”

The CJEU also faulted the tribunal for distorting the Commission’s decision in several aspects.

EU antitrust chief Margrethe Vestager underscored the importance of the case, saying “this judgment goes far beyond the specific circumstances and mobile communications sector affected by the Commission’s decision”.

“Overall, today’s judgment validates our approach to merger assessment under the EU Merger Regulation,” she said in a statement as she singled out deals that trigger competition concerns even if these do not create or reinforce a company’s dominance.

Moody’s said the ruling was credit negative for the telecoms industry as it suggests no change in the EU regulator’s tough line.

“This means there is likely to be continued intense competition among operators, particularly in markets with four mobile operators, reducing pricing power and weighing on credit quality,” the credit ratings agency said in a note.

Telecoms lobbying group ETNO, whose members include Deutsche Telekom, Orange and Telecom Italia, lamented Thursday’s ruling.

“Lack of scale in telecoms remains a major strategic weakness for the EU. Either we address it, or Europe will lose out to others in the race to network virtualization,” ETNO Director General Lise Fuhr said in a statement.

The judgment means a return to the status quo prior to the General Court’s 2020 ruling, said Assimakis Komninos, a partner at White & Case.

“The judgment was to be expected. It makes life easier for the Commission. The General Court went a bit too far in its standard of proof required from the Commission. This brings the state of matter back to normal,” he said.

“The CJEU though didn’t give the Commission carte blanche either. It is a corrective ruling, based on principles of effectiveness. It is certainly not a disaster for merging parties,” Komninos said. Reuters

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