Orange and T-Mobile to challenge OFT

Telecoms groups want EU to handle merger inquiry

Orange and T-Mobile are preparing to lobby European regulators to reject the Office of Fair Trading's request to scrutinise their planned merger in the UK, in what is considered a "crucial" 10 days for the deal.

The City regulator yesterday made a formal request to the European Commission "to refer the UK aspects of the proposed joint venture between Orange UK and T-Mobile UK to the OFT," adding the deal could "significantly" threaten competition. The Commission will decide by the end of next week. "The OFT's move wasn't a surprise. The real issue is what the Commission does," one source said, "the next 10 days are crucial".

Sources close to the deal said Orange and T-Mobile were arguing behind the scenes to keep the case in Europe.

"The OFT has been fully involved in the process so far, and will continue to be involved moving forward," one said. "But at its heart, this is a European deal between France Telecom and Deutsche Telekom, and as such needs to be dealt with at a European level."

Though the OFT's request was "not unexpected," according to insiders, it is bad news for the two groups, which revealed the merger plans in September. A European investigation was expected to be waved through in 90 days while a UK equivalent could tie up the deal for considerably longer. They also fear the concessions could be stricter.

The deal would face close scrutiny in the UK. After almost three weeks of consultation, the OFT said yesterday that the joint venture "threatens significantly to affect competition in mobile telecommunications in the UK".

It added: "If the request is granted, the OFT intends to examine the proposed joint venture with a view to deciding whether it should be referred to the Competition Commission for in-depth investigation."

The sticking point is less about market share of British customers – it would become the largest operator with 37 per cent customer share – but about radio spectrum. The merged company would hold 84 per cent of what one rival called "hot" 1800 MHz spectrum, which is ideal for mobile data, driven by the rise in smartphones such as the iPhone.

Kevin Russell, chief executive of 3, said he was concerned over the implications of the deal for rivals and consumers: "We believe that the OFT is right to call for the merger to be scrutinised where it matters most, the UK."

He added that the companies should have to give up at least a third of the spectrum. 3 is also concerned over the negative impact of the deal on its network sharing agreement with T-Mobile. O2 has also publicly called for the deal to be scrutinised in the UK.

T-Mobile and Orange said in a joint statement: "We are in close contact with all of the authorities involved, including the OFT and Ofcom. We strongly believe that the proposed merger is good for Britain and will continue to work closely with all interested parties."

Consumer Focus hailed the OFT's decision yesterday. Deputy chief executive Philip Cullum said: "The impact of the proposed merger would be felt most in the UK so it is important that this is scrutinised by domestic regulators closer to the UK mobile sector."

Peter Vicary-Smith, the chief executive of consumer campaigner Which?, also backed the decision yesterday.