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Brexit, Three/O2 and the end of joined-up merger control?

13 April 2016
This week’s intervention by the Competition and Markets Authority in the ongoing, hard-fought review of CK Hutchison's bid for O2 UK supports the views already expressed by the EU competition commissioner and reflects a closeness of interaction between European regulators. But this closeness could disappear if the UK votes to leave the EU in June.

The review of the deal is being conducted by the European Commission under the EU Merger Regulation.  The Merger Regulation applies to transactions meeting high thresholds based mainly on the worldwide and EU-wide turnover of the corporate groups involved.  The Commission is therefore able to look at a transaction where the only real effects will be in the UK – here the combination of Hutchison's UK network Three with rival O2.  

Built into the Merger Regulation are mechanisms to allow the Commission to transfer jurisdiction to national competition authorities, either at the request of such an authority or at the request of the parties to a transaction.  Comparable mechanisms allow the Commission to review mergers which would otherwise fall within national jurisdiction – often used by parties to avoid duplicative notifications to multiple authorities.  

Beyond these formal mechanisms lie close institutional ties between the Commission and the UK authorities, in particular the senior competition regulator the Competition and Markets Authority.  The CMA and Commission, together with the CMA's peers in every EU Member State, are members of the European Competition Network.  The ECN provides a forum for the development of the soft connections between regulators in London and Brussels.  These soft links are critical in the merger control area – maybe even more so because there is less formal harmonisation in this area of law than in the related anti-cartel enforcement. 

So, what might change on a Brexit? 

Mergers in the UK would not be insulated from EU jurisdiction.  The Commission today reviews transactions centred in the US, Asia and elsewhere.  EU jurisdiction will still be based on the turnover of the parties involved (though those rules may produce different results following a Brexit).  

The formal transfer mechanisms under the Merger Regulation will likely no longer operate between Brussels and the UK after a Brexit.  In Three/O2 the UK sought to have the case referred back to it but the Commission declined, seeking to retain a consistency of approach across mobile network operator mergers after reviewing a series of these in different EU Member States.  Following a Brexit, it is unlikely that this would even be an option.  Cases may be decided by the "wrong" regulator. 

Similarly, the UK is unlikely to continue to apply a "one stop shop" principle.  Some future transactions might fall for review both in Brussels and in the UK.  A transaction may only be able to proceed with a tick from both authorities.  Consistency of approach and outcome is not guaranteed. 

Hardest to measure would be the diminishing degree of soft influence which UK regulators might have on the Commission's thinking.  Three/O2 has been distinguished by public opposition by both the CMA and Ofcom.  It is impossible to know how much such interventions may sway the outcome of Three/O2.  In turn it is hard to say how much this may change in a post-Brexit future.  What is clear is that there will be less UK influence than today.  Commission officials who begin to see their UK counterparts as foreign and who meet less often almost inevitably will defer less to them.  This must not be overstated – the Commission has close links with competition authorities outside the EU – but nonetheless must to a degree be true. 

As with all things Brexit, the detail of EU-UK relationships in the future remains uncertain.  What seems certain is increased complexity for parties and a reduced UK influence on Commission merger reviews.  

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