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UK regulator gives Cellnex and Hutch unwanted Christmas present

Cellnex towers.jpg

Spanish tower company Cellnex has expressed its dismay at the UK competition regulator’s opposition to its latest takeover plan.

Cellnex, which has already done tower deals in France and the Netherlands in the past few months, agreed a year ago to buy 14,700 towers from CK Hutchison, which owns the Three mobile companies.

The deal, originally set at €10 billion, includes Hutch’s towers in Austria, Denmark, Ireland, Italy and Sweden, all of which have now been sold to Cellnex, as well as the UK, a total of 24,600 sites.

But now the UK’s Competition and Markets Authority (CMA) is set to throw 6,000 towers from the UK part of the deal into disarray by telling Cellnex and Hutch that the planned merger “may be expected to result in a substantial lessening of competition in the supply of access to developed macro sites and ancillary services to wireless communication providers in the UK”.

Cellnex said it “will engage with the CMA in response to its ‘notice of possible remedies’, including with any practical alternative remedies the company wishes the CMA to consider”.

And it said it “continues to believe that this is a strongly pro-competitive deal which will create firm incentives to unlock, improve and extend mobile coverage, including 5G, across the whole of the UK”.

The CMA has given the parties until 7 January 2022 – three weeks today, over the Christmas and New Year break – to submit “comments on possible remedies”. That’s two months ahead of what’s still the expected completion date of the UK part of the merger, 7 March 2022.

But the CMA lists possible remedies that it would find acceptable, starting with prohibiting the merger, but including “the divestiture of a package of developed macro sites and ancillary services” – in other words, selling off some of either Hutchison’s or Cellnex’s UK towers to a truly independent competitor.

It notes: “The CMA prefers structural remedies, such as divestiture or prohibition over behavioural remedies”, because it is hard to monitor and enforce behavioural remedies and because structural remedies will “[restore] rivalry”.

Divestiture of towers into a new competitor would have to be substantial, the CMA makes clear in its findings, “sufficient to replicate competition to the level that would have prevailed absent the merger”.

In other words, if Cellnex merges Hutch’s UK tower business into one, a new competitor would have to be carved out that is a significant new competitor.

The CMA notes: “The divestiture package would also need to be appropriately configured to be attractive to potential purchasers.”