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* European Commission blocks Hutchison bid for O2
* Decision casts doubt on planned Wind, 3 Italia deal
* Commission says UK deal would have led to higher prices (Adds comments from O2 UK's CEO)
By Foo Yun Chee
BRUSSELS, May 11 (Reuters) - The European Union'scompetition regulator blocked on Wednesday CK HutchisonHoldings' plan to become Britain's biggest mobiletelecoms network operator, in a decision which also cast doubtson whether it can still win approval for another deal in Italy.
The European Commission said allowing Hutchison's 10.3billion-pound ($14.9 billion) acquisition of O2 UK from Spain'sTelefonica would have led to higher British mobileprices, as it left just two rival network operators - BT Group's newly acquired EE, and Vodafone.
Hutchison is also awaiting a ruling on the agreed 21.8billion-euro ($24.8 billion) merger of its Italian subsidiary 3Italia with Vimpelcom's Wind to create a stronger rivalto Telecom Italia and Vodafone.
Hutchison said it was disappointed by the Commission'sdecision on its O2 deal and would consider its options,including a possible legal challenge.
It also said it would now focus on working with theCommission to secure clearance of the proposed merger of Windand 3 Italia.
The collapse of the British deal is also a blow toTelefonica, which was selling O2 to cut its 50 billion euros ofdebt, but Wednesday's announcement did not come as a surprise asthe deal was already expected to be blocked last month,according to sources familiar with the matter.
A precedent was set in September when TeliaSonera and Telenor scrapped a merger in Denmark after EuropeanCompetition Commissioner Margrethe Vestager said she believedthat the national market needed at least four mobile networkoperators to maintain competition.
Telefonica said last month it had plenty of options for O2UK if the Hutchison deal fell through, including finding anotherbuyer for all or part of the business, a stock market listing,or investing further in the subsidiary.
Ronan Dunne, chief executive of O2 UK, said on Wednesday hewould evaluate options for the group once the agreement withHutchison has lapsed at the end of June.
But he said the strength of the O2 brand in Britain meantthere was no pressure to strike a deal with another operator.
"There's a strong role that can be played by a pure mobileoperator if it has the right quality in place," he toldreporters.
"I am hugely excited about the prospects for us as abusiness and for the sector itself, and in those circumstanceswe are in an even stronger position than we were 15 to 18 monthsago."
On Tuesday cable group Liberty Global said itwould consider buying O2 UK if Brussels blocked the Hutchisondeal but said it also valued the flexibility it had in itscurrent strategy of being a virtual mobile operator.
France's Iliad, the owner of Free Mobile, is alsointerested in the British market, a source familiar with thesituation said in January.
The European Commission said on Wednesday combiningHutchison's Three UK and O2 UK would have created a marketleader with a share of more than 40 percent, reducing choice,hampering infrastructure development and weakening thenegotiating power of smaller 'virtual' operators seeking toobtain access to networks.
Vestager said the size of the EU document setting out thedecision underlined the complexity of the case.
"This decision is 2.56 kilograms. It is a very heavydecision, I weighed it myself," she told a news conference.
CHILL ON TELECOMS CONSOLIDATION
The Commission said Hutchison's proposal to boostcompetition from virtual rivals such as Virgin Media, owned byLiberty, and Tesco Mobile, owned by Tesco and O2, byoffering them capacity on the merged network were notsufficient, and that the company was also not willing to createa wholly separate fourth network operator.
The regulator also rejected the industry's arguments thatmergers were necessary to enable big new investments to be madein mobile broadband networks, saying effective competition wasthe main driver for investment.
The decision will discourage further similar deals, leavingcompanies to look instead at more horizontal mergers as theyseek to offer packages of fixed and mobile broadband Internet,TV and telephony services, said Adrien Giraud, a partner atWillkie Farr & Gallagher.
In January BT completed its 12.5 billion-pound ($18 billion)acquisition of EE, the UK's biggest mobile network operator,opening the way for the former state monopoly to create a singleintegrated network offering a combination of telecoms and TVservices that competitors are scrabbling to match.
"Although the Commission will probably reiterate that thereis no magic number and that every case needs to be assessed on its own merits, this will undoubtedly chill consolidationefforts in the telecoms industry and in particular every plannedso-called four-to-three case," he said.
"Convergence therefore seems to be the only way forward forconsolidation." ($1 = 0.6932 pounds)
(Additional reporting by Philip Blenkinsop in Brussels and PaulSandle in London; Editing by Mark Potter and Greg Mahlich)
