Outlook: Hutchison attempts an encore as Orange leads

Merger crackdown; Ed does it again

An unseemly squabble broke out yesterday over who – Orange or Vodafone – is now the market leader for mobile phones in the UK. Vodafone claims continued supremacy, but Orange insists that on any comparable basis, Orange is now bigger by some margin. Strip out the inactive customers, and Vodafone's numbers are smaller, Orange proclaims. Apply the same more conservative definition of an active user as Orange, and the Vodafone numbers slip even further.

Well maybe, concedes Vodafone sniffily, but what really matters is revenue per user and profitability, and on both measures, we are still bigger than Orange. And so the virility dance continues. What is true, however, is that if Vodafone's Sir Christopher Gent had been told about the inroads Orange was destined to make into the UK mobile phones market, even as little as two years ago, he would have choked on his cornflakes.

As fourth into the market, and from a standing start less than eight years ago, Orange has risen to be either in fact the number one, or very close to it. What's more, on present evidence it is continuing to grow more strongly than Vodafone. Orange's strategy of investing heavily in network quality, and capitalising on its newcomer advantage in utilising all the latest technology, has paid off in spades. In no small measure, that success is down to Orange's original backer, the Hong Kong-based conglomerate, Hutchison Whampoa.

Orange may not be very old, but in its short life it has since been through more owners than Joan Collins has had husbands. Hutchison has long since departed the scene, but come September, it will be back to attempt a repeat the Orange success story as a fifth challenger in the British mobile phones market.

The task this time is going to be a lot tougher. It has had to pay heavily for its 3G bandwidth, and to begin with at least it will have to roam free on rival networks to be up and running at all. Product and service differentiation may be harder to achieve than it was when Orange first started out, and in these profit hungry days, the handset subsidies that in the past have provided the mobile market with most of its growth may be harder to justify. Then again this will be the brave new world of 3G, and if Hutchison can once again achieve the trick of superior quality of service, it may yet surprise us all.

Merger crackdown

If nothing else, the tug of war for P&O Princess is proving field day for the competition lawyers. The great thing about competition law is that the bigger the regulatory muddle becomes the better it gets for the lawyers, for although their fees are success related to some degree, they are also on a meter, and the longer the whole affair drags on, the more they make.

For Freshfields and other competition specialists involved in the bid battle, yesterday's reference to the Competition Commission will thus be seen as not altogether a bad thing. They seem to have been wrong in believing the merger with Royal Caribbean could sail through without snagging on the regulatory rocks, but the prospect of another six months work sure does sugar the pill.

We don't yet know what reasoning John Vickers, director-general of Fair Trading, applied in recommending the reference. The advice won't be published for a couple of weeks yet. But it doesn't look good for others hoping to slip through big consolidating mergers under cover of the business downturn.

Mr Vickers seems to have rejected representations that cruises should be treated as part of the outbound vacation market more generally. Instead he has chosen to view cruising as a narrow and specific market all of its own. P&O already carries approximately 23 per cent of all cruise passengers in the UK. Royal Caribbean has 7 per cent of the market and Carnival 9 per cent. In either combination, then, the cruise merger was going to be a problem for the OFT. Add to that P&O's long history of conflict with the competition authorities more generally – on ferry fares, shipping tariffs and the like – and a reference was perhaps always inevitable.

All the same, it will come as a blow. Competition regulators in the UK, Brussels, the US and elsewhere are adopting a much more vigorous approach to mergers. Once upon a time market share was regarded as pretty much the only yardstick of market dominance, allowing consolidation of smaller players provided they didn't surpass the market leader by too much. These days, maintaining diversity of competition in the market place has become a further key policy pursuit.

P&O continues to believe that eventually regulators might allow its Royal Caribbean merger through, though inexplicably the company's competition lawyers still think the Carnival alternative will be blocked. In fact, the issues are much the same in both cases in whatever territory they are applied. Three dominant players would be reduced to two, and although the cost of a cruise may not seem to be of much concern to anyone below the age of 60, competition regulators have got the bit between their teeth and they are determined that a precedent should not be set.

The implications are clear. All but the most tame of mergers are going to struggle to get through. You might have thought that eventually business leaders would cotton on, and stop wasting their time and money on such pointless endeavours, but as long as there are competition lawyers and investment bankers around to chase a fee, that doesn't seem hugely likely. There aren't many growth industries around these days, but alongside human rights, competition law seems to be one of them.

Ed does it again

Most of us assumed that Ed Wallis would have better things to do than play second fiddle to the Germans when E.ON finally completes its takeover of Powergen this spring. After all, he is used to being his own boss and running his own show, as any number of pretenders to the Wallis crown at Powergen have discovered to their cost over the years.

Not so apparently. Ed has decided to relinquish the chairmanship of Powergen and step back into the role of chief executive when the Germans come marching in. That means there is no place left at the table for Nick Baldwin, who was only anointed chief executive by Ed 10 months ago and is now leaving on what we are assured are "amicable" terms.

Plenty of those who thought they could fill Ed's shoes have ended up being given the order of the boot. The official explanation In Mr Baldwin's case is that, having been originally appointed as the chief executive of a FTSE 100 company, the offer of running E.ON's British outpost was one that he could easily resist.

If that is the case, then it makes Ed's decision to stick around all the stranger. Ed will pocket £5m from his shares so he does not need the salary and, at 62, he is reaching the age when a clutch of non-executive chairmanships ought to beckon rather than the daily grind of running an electricity generator. He must just love the job. But how long can he live with the Germans?

j.warner@independent.co.uk