The European Commission has set out its objections to Three Ireland owner Hutchison Whampoa's bid of up to €850 million to take over O2 Ireland.

The commission’s competition directorate declined to comment yesterday on the contents of the letter it sent to Hutchison/Three.

It is understood, however, that the commission has raised four main items of concern over the bid, which will be decided upon by regulators by April 24th.

Firstly, the commission has said it has concerns about reducing the Irish mobile market from four network owners – currently Vodafone, Three, O2 and Meteor – down to three.

With Vodafone and a combined O2-Three both at about 40 per cent of the market, the commission is concerned that the Eircom-owned Meteor will be too weak as the third player to challenge the dominance of the other two.

Secondly, the commission is concerned that the combined entity will have too much spectrum, with both O2 and Three having spent substantial amounts in the 2012 €480 million spectrum auction overseen by Comreg, the regulator.

The commission is understood to have asked Hutchison/ Three if it would be prepared to divest some of the spectrum of the combined entity.

Spectrum ownership
Three and O2 together own three blocks of 900 megahertz spectrum compared with two each for Meteor and Vodafone. The combined entity would also own seven blocks of 1,800 megahertz spectrum, more than twice the amount owned by Eircom and also more than Vodafone.

Thirdly, the commission has raised concerns about whether the combined entity would persist with the network-sharing arrangement that Eircom has with O2. Three already has its own network-sharing deal with Vodafone.

The commission is understood to have asked if the combined entity would be prepared to continue with the O2-Meteor sharing arrangement.

Finally, the commission has asked Hutchison/Three if it can guarantee that there will be no significant obstacle to the provision by it of a mobile virtual network operator (MVNO) arrangement for any other potential operator that wants to enter the market, using its infrastructure.

Three is understood to have already concluded the terms of such an agreement with cable operator UPC. This would allow UPC to enter the quad-play – telephone, broadband, television and mobile – area that is currently occupied solely by Eircom.

Three is understood to be working on its response, which is likely to be submitted at around the end of the month.

It released a statement yesterday saying its response would directly address the issues raised by the commission. It is understood the company has not yet decided if it will seek an oral hearing into its bid.

“Three will put forward strong and effective remedies to address the commission’s concerns. Three . . . [is] confident that we can convince the commission of the pro-competitive benefits of the proposed acquisition,” it said.

Scale and strength
It said the proposed merger would give it the "scale and financial strength necessary" to challenge the market leader Vodafone.

“The Irish mobile market is currently characterised by one clear dominant market leader with the other operators lagging behind. Without Three’s acquisition of O2 Ireland, this gap will only increase,” it said.

Eircom, which had written to the commission outlining its concerns, yesterday also declined to comment.