In the latest setback to consolidation that telecommunications operators say they need to funnel money into new networks, the European Union blocked CK Hutchison Holdings Ltd.’s bid to create the U.K.’s biggest mobile carrier.

The European Commission said that there were risks of prices being raised and choices shrinking for customers due to the  Hutchison’s plan to buy Telefonica SA’s O2 U.K. mobile-phone business for as much as 10.25 billion pounds ($14.8 billion) and merge it with its Three unit. The EU authority said that there was not enough worth in the companies’ pledges to increase investment and freeze prices.

“We had strong concerns that consumers would have had less choice finding a mobile package that suits their needs and paid more than without the deal. It would also have hampered innovation and the development of network infrastructure,” EU Competition Commissioner Margrethe Vestager said in an e-mailed statement to the media on Wednesday.

In the fragmented European mobile industry, the EU ban has dealt a blow to tie-ups. On condition that the merging companies offer space on their systems to smaller rivals that don’t own their own wireless networks, regulators cleared previous deals that reduced the number of operators to three. The U.K. is a vibrant market for these so-called MVNOs, or mobile virtual network operators.

“If you can’t find a way to clear four to three in the U.K., you’re probably not going to be able to find it anywhere else in the EU. There were a lot of hopes that the commission and Hutchison would come to terms,” said David Cantor, a Brussels-based lawyer at Telecommunications Law & Strategy. ”

It was “disappointed” by the decision and that it is considering a legal challenge among its options, Hutchison said.

“We strongly believe that the merger would have brought major benefits to the U.K., by unlocking private-sector investment, and improving network capacity, speeds and price competition for consumers,” the company said in an e-mail.

The EU’s analysis showed that combining O2 with Hutchison’s unit would have led to higher prices for all operators in the U.K. Regulators said that BT Group Plc’s EE and Vodafone Group Plc would have been weakened by the merged firm’s involvement in both of the country’s network-sharing arrangements.

Though opposition to a Danish deal forced the companies to ditch the proposal last year, it’s the first time regulators have formally blocked a mobile-phone transaction. When Orange SA and Bouygues SA recently ditched a deal to merge their French phone businesses, government demands played a role.

Attempts to merge network operators in other countries might be hampered by the ban. For its 50-50 venture with VimpelCom Ltd. in Italy, Hutchison is currently trying to win EU approval.

Carlos Winzer, a senior vice president of corporate finance at Moody’s Investors Services said that telecommunications operators want to merge to generate savings and relieve the pressure of cutthroat pricing.

(Adapted from CNBC & Bloomberg)