Three U.K. Seeks to Block British Telecom Collaboration

Stephen Lerner, the regulatory affairs director of Three U.K., said he had traveled to Brussels to deliver a letter of concern to European competition authorities, asking them to thwart the venture, a combined effort by Telefónica of Spain, which runs the O2 service in Britain, Vodafone and Everything Everywhere, the No. 1 operator owned by Deutsche Telekom and France Télécom.

“Instead of competing for the benefit of consumers, the three operators that hold 90 percent of the U.K. market have engaged in a cozy collaboration and closed ranks against competition,” Mr. Lerner said.

By combining resources and shutting out Three, an aggressive, low-cost seller of phone and Internet services, Mr. Lerner said the operators would impose high transaction fees on British consumers. He also said the venture could set a difficult precedent in Europe, where countries are beginning to grapple with the issues raised by national wireless payment networks.

“The competition authorities in Brussels should not allow this type collaboration to go forward under any circumstances,” Mr. Lerner said. “Excluding the maverick raises serious competition concerns.”

Three was Britain’s fourth-largest mobile operator in August, with 6.9 percent of the country’s subscribers, according to International Data Corporation. Everything Everywhere had 38.5 percent of the market; O2 was second with 30 percent; and Vodafone third with 24.8 percent.

The three operators said on June 16 that they would form a mobile commerce venture by the end of this year. In a joint statement, the operators on Wednesday disputed Three U.K.’s objections, saying that they were already in talks with the European Commission before formally applying for approval later this year. Three will only be able to lodge a formal complaint when that happens.

The operators said the venture would “dramatically speed up the introduction of mobile advertising and payment services” by enabling advertisers, retailers, banks and phone companies to offer mobile-commerce products and services.

The venture aims to develop a payment system using a technology called Near Field Communication, or NFC, which involves the wireless transfer of encrypted account and payment information from a mobile handset to a retailer’s electronic cash register. Besides setting common technical standards for mobile payments, the venture also plans to sell mobile advertising and could set the stage for the future of mobile advertising in Britain.

The three operators said the services sold by the venture would be open to all retailers and operators, including Three U.K., which has about five million customers in Britain and is owned by Hutchison Whampoa of Hong Kong.

Each of the three operators in the British venture holds an equal stake. Together, the operators plan to invest £10 million to £50 million, or about $16 million to $80 million, to develop the technology and market it to retailers, according to an employee for one of the companies involved who was not authorized to speak publicly.

Mobile payment technology, long promoted as a lucrative source of revenue for operators, has made inroads in developing countries where banks and phone systems are poor, but has yet to catch on in mature markets.

That may be changing, however. In France, the government in 2010 began trials of mobile payments for bus and train tickets in Nice and Paris. Even Google, the search engine leader, has said it plans to introduce a mobile payment service, Google Wallet, in Europe by 2012.

In Britain, most mobile operators and some banks have conducted trials of their own mobile payment services, but the fragmented approach has discouraged large retailers from making the investments necessary to adopt the technology. John Delaney, an analyst with International Data Corporation in London, said a common platform that was set up and run by the three British operators would accelerate mobile payment in Britain.

“Mobile payment has moved beyond its infancy and is now poised for commercial deployment,” Mr. Delaney said. “The benefits of a common platform are that it makes it easier and less expensive for retailers to adopt and install the systems without having to deal with individual operators and conflicting technical standards.”

Everything Everywhere, Telefónica and Vodafone said they all had advanced mobile advertising and payment programs under way, and did not intentionally exclude their rival.

“It made sense to bring their expertise and experience together to get the venture up and running as quickly as possible, before turning to the industry for further participation,” the operators said in their statement.

Mr. Lerner said the exclusion was retribution for Three U.K.’s efforts to lower consumer calling and Internet prices, as well as its campaign to cut the price of interoperator termination charges, which are regulated by the government and tend to benefit the larger mobile companies.

Three also lets its customers use Skype, a rival Internet service that allows consumers to avoid mobile charges.

Three’s exclusion weakened its “ability to be a competitive force in the U.K.,” he said.

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