BRUSSELS -- The European Union has denied CK Hutchison Holdings approval to acquire Britain's second-largest wireless company and merge it with its own mobile carrier, citing a potential to hurt consumers through reduced competition.
The European Commission's decision Tuesday upends the Hong Kong-based conglomerate's plans to buy O2 UK from Spanish group Telefonica and combine it with fourth-ranked Three UK, which would create a wireless company with a market-leading share of more than 40%.
CK Hutchison had said in February that it would not raise mobile rates for five years after the takeover. It also offered to invest 5 billion pounds ($7.22 billion) in the U.K. over five years and work for the benefit of customers and the improvement of mobile services. But these assurances failed to allay the commission's concerns.
"We are deeply disappointed by the commission's decision to prohibit the merger," CK Hutchison said in a statement, adding that it would study the details carefully and consider various options, "including the possibility of a legal challenge."
CK Hutchison reiterated the benefits of its proposed merger. On top of possibly unlocking 10 billion pounds of digital infrastructure investment in the U.K., it is supposed to address underlying issues such as coverage, network capacity, price competition, and imbalance in spectrum ownership among mobile carriers.
The company further added in the statement that it "will now focus on working with the commission towards clearance of our proposed merger with Wind and 3 Italia," another pending merger case in Europe.
Had the merger gone through, it would have reduced the players in Britain's wireless market to just three. For years, four or more had been regarded by European competition authorities as preferable for maintaining healthy competition in a given country. More recently, consolidation in Germany, Austria and elsewhere has produced some examples of three-provider markets.
But under Margrethe Vestager, the commissioner in charge of competition policy since 2014, rulings on telecom tie-ups have come down on the side of preserving competition. Last fall, the commission blocked a merger that would have reduced the number of wireless carriers in Denmark to three.
The commission insists there is no magic number of companies that ensures a competitive market. But the ruling against CK Hutchison's merger bid is likely to make other players think twice about deals that would create three-provider markets.
Nikkei deputy editor Kenji Kawase in Hong Kong contributed to this story.