European watchdog blocks 3's £10.3bn takeover bid for 02

Hutchison, which operates Three, said it was “deeply disappointed” by the decision and has warned that it could launch a legal challenge.

The company said: “We will study the Commission’s decision in detail and will be considering our options, including the possibility of a legal challenge.

“We strongly believe that the merger would have brought major benefits to the UK, not only by unlocking £10 billion of private sector investment in the UK’s digital infrastructure but also by addressing the country’s coverage issues, enhancing network capacity, speeds and price competition for consumers.”

EU antitrust regulators argued that the deal would have meant higher prices and less choice for UK consumers.

EU antitrust chief Margrethe Vestager said:”Allowing Hutchison to take over O2 at the terms they proposed would have been bad for UK consumers and bad for the UK mobile sector.”

O2, owned by Spain’s Telefonica, is now likely to become a takeover target for Liberty Global.

Liberty’s chief executive, Mike Fries, said on Tuesday that “it would be strange if we didn’t evaluate that option”.

A proposal to offload Telefonica’s stake in a joint venture with Tesco and to offer network capacity to Tesco Mobile and Virgin Media in an effort to get the deal approved was rejected by the Commission.

The move to block the deal signals a stricter approach by the Commission toward mergers in the region that are deemed to harm competition.

Matt Evans, antitrust partner at law firm Jones Day, said an appeal by either Hutchison or Telefonica could take up to two years if it is not fast-tracked.

He added: “While there is no one-size-fits-all analysis for all EU member states, it is notable that such a deal in the UK has been prohibited, despite the UK’s plethora of mobile virtual network operators alongside the mobile network operators and presumably an offer by Hutchison to give remedies in line with those that secured clearance in the earlier deals.”