The European Commission has opened an investigation into the proposed creation of a mobile wallets joint venture between UK mobile operators Vodafone, O2 and Everything Everywhere, known as "Project Oscar".
In a statement released on Friday, the EC said its preliminary investigation indicated that the joint venture may block future entrants to the market. The Commission now has 90 working days to take a final decision on whether the proposed transaction would reduce competition in the European Economic Area (EEA).
"The Commission is in favour of any initiative that will develop the promising mobile commerce sector in Europe and bring new and innovative payment and interactive advertising experience to consumers," said Joaqun Almunia, Commission Vice President in charge of Competition policy.
"At the same time, we need to make sure that competing services can keep emerging on this market, so that incentives to innovate remain and customers get the best mobile commerce services at the best cost."
If approved, Project Oscar will allow consumers to make purchases in a wide range of shops via their phone using Near-Field Communication (NFC) technology.
Until now, individual partnerships between network operators and banks have created closed-loop systems, so that a consumer that signs up to use NFC with a particular operator and a particular bank cannot use the service in a shop with terminals provided by a different operator.
Project Oscar aims to solve this issue by offering an integrated mobile payment system that will be run independently and open to all. It will also provide various mobile commerce services to businesses, including mobile marketing and associated data analytics services.
Project Oscar mirrors a similar join venture in the United States known as Isis.
The proposal has faced fierce opposition from Three, the smallest UK operator, which claims to have been frozen out of the process. Some of Three's concerns were reflected in the Commission's decision to open an in-depth investigation into the venture.
"We support the Commission's finding that this joint venture could block future initiatives in the area of mobile commerce services," said a spokesperson for Three.
"We are pleased that it has moved to launch an in-depth investigation into the scope, activities and impact on consumers of this venture as well as the future development of the market for these services."
However, Vodafone, O2 and Everything Everywhere are confident that the EC will rule in favour of Project Oscar, and maintain that the service will have a positive impact on the UK market.
"We remain confident that an extended review will conclude that the proposed joint venture is pro-competitive and will provide robust competition to global players," a statement from the companies read.
"At the heart of the proposed joint venture is a desire to bring to the UK an easy and simple solution for businesses to create and consumers to enjoy m-commerce services."
Commenting on the news, Richard Britton, managing director of CloudSense, said the EC investigation would give businesses the time to prepare for the arrival of mobile payments.
"Before consumers embrace a new way of paying and start swiping phones instead of credit cards, it is imperative that all operators sign-up to a common set of protocols that allow for mobile payments to be used across a range of industries," said Britton.
"Banks, merchants, wireless carriers and phone manufacturers all need to come together and commit to one platform that provides a secure, payment architecture for mobile payments to truly take off."