EU to block O2 sale to Hutchison: source

Brussels (AFP) – The European Commission is likely to shoot down Telefonica’s blockbuster sale of British telecom giant O2 to Hong Kong group Hutchison on fears it would inflict higher prices on British consumers, a source told AFP on Wednesday.

“We expect European Competition Commissioner Margrethe Vestager to block the sale,” said a source close to the matter, indicating that a decision was expected this month.

A spokesman for the commission declined to comment, saying only that the EU’s executive branch has until May 19 to hand down a ruling.

Hutchison is controlled by one of the richest men in Asia, Li Ka-shing, and his buyout of O2 from Spain’s Telefonica for £10.25 billion (14 billion euros; $15.2 billion) would create Britain’s biggest mobile phone company.

In case of approval of the deal by Brussels, it would be especially sensitive as it could revive accusations in the UK of meddling by the EU ahead of a June 23 referendum on whether Britain will remain in the bloc.

It would also be a major setback for telecom companies in Europe which have lobbied Brussels to relax anti-trust rules in order to unify a highly-fragmented market and boost investment.

Crucially, such a deal would reduce the national market in Britain to three players from four, in a downsized landscape the EU believes hurts competition.

Hutchison owns operator Three and hopes to merge the company with O2.

Last year, Scandinavian groups TeliaSonera and Telenor abandoned plans to merge their Danish mobile operations ahead of an almost-certain veto by the EU’s anti-trust chief.

Vestager, the former Danish economy minister, has already grabbed headlines for taking on Internet giant Google over anti-trust violations on its search engine and Android mobile phone platform.

Hutchison and Telefonica in March offered concessions to push through the deal.

Telefoncia’s debt stood at 50.2 billion euros at the end of March and the company is looking to the deal to shore up its finances after years of spending billions of euros in acquisitions and capital investments.

“We think that the strictly legal analysis will justify a clear decision,” Telefonica CEO Jose Maria Alvarez said last week when the company presented its first quarter results. 

“But a negative decision cannot be disregarded, probably due to political reasons especially in the context of ‘Brexit’, which is basically contaminating all debates, and also the strong opposition shown by the national regulatory authorities,” he added.

If the sale of O2 foundered, the company would find other solutions, including new buyers for the company, he said.

Shares in Telefonica closed down 1.58 percent at 9.10 euros.