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Bank: Court creates O2/Three confusion

October 24, 2022

In May 2020, the General Court of the European Court of Justice ruled that a UK telco merger between O2 and Three, previously blocked in 2016, should be annulled.

A note from Jerry Dellis and analysts at investment bank Jefferies says that the implication is that the evidence bar for EC competition authorities attempting to block future in-market merger attempts on the basis of prospective consumer harm may not now be raised.

“We don’t believe that investors were particularly optimistic ahead of today’s judgement,” says Jefferies.

“The Advocate General (AG) [now] proposes that the General Court’s May 2020 decision be set aside and reconsidered in a fresh ruling. The AG recommends that the General Court provide clarification on the standard of proof which the EC’s competition authorities should be required to meet. She argues that the EC has a margin of discretion in applying the concept of a significant impediment to effective competition, and the court review should have been confined to ascertaining whether there was a manifest error. On the relevant economic analysis that should be expected of the competition authority, the AG believes that it would not be possible to provide objective proof of consumer harm. Accordingly, a conclusion on the basis of plausible future market developments should be adequate. No justification is found for requiring a higher standard of proof for competition assessment in oligopolistic market situations. The Advocate’s judgement is not binding on the ECJ, but we understand that such judgements are not usually ignored,” says the bank.

The bank’s report adds: “We have previously argued that the cost-of-living crisis weakens whatever political support for market repair might have existed in the immediate aftermath of the pandemic. In Vodafone (Intractable Headwinds; Downgrade to Hold, 13 May 2022), we highlighted a 2 May Reuters interview in which Commissioner Vestager opposed loosening EU merger rules and described telecom industry arguments about needing scale to encourage investment as ‘not new’. We also reported on insight from legal experts active in competition law cases. They noted that there is a widely held view among national competition regulators that there has been a concentration in markets (across industries) over recent years, which may now be detrimental to consumer interests.”

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