€8-billion EU Mobile Merger Comes Under Fire

Late last year, the EU Commission announced it had opened an in-depth investigation into the €8-billion merger between the German arm of Telefonica, the Spanish telecoms giant and owner of the O2 network in the UK, and E-Plus, a German network.

Telefonica in Germany and E-Plus together represent two of the four major mobile telecoms providers in Germany. Their proposed merger has raised competitive concerns in Germany where mobile prices are already high in comparison to other EU Member States.

In it’s initial market investigation, the EU Commission had concerns that the merger would raise prices in both the retail and wholesale markets. The four major players in Germany also sell through branded resellers and a loss of competitors would likely raise wholesale telecoms prices and reduce competition.

Interested parties are curious as to how the Commission will treat the parties and what, if any, assets the parties will have to dispose of to obtain regulatory clearance. Examples of such forced divestitures could be the sale of mobile bandwidth or instigating measures to protect price-competition in the wholesale market.

Believed to be of central concern to the Commission is that fact that the major market players would be falling from four competitors to three. In the Commission’s eyes, a consolidation of this kind could result in more price co-ordination and higher prices for consumers.

The merger is being seen as a test case in a market which is hungry for cross-border consolidation. If it goes ahead without concession, the merged entity will become Germany’s top operator. This case is being watched eagerly by Hutchinson in Ireland which is purchasing Telefonica’s Irish mobile business and is currently also being looked at by the EU Commission. The Irish transaction potentially faces similar objections to the German deal as again the market will be reduced from four major competitors to three.

The Commission’s decision in the German Telefonica case is due on 14 May 2014. The Commission’s regulatory decisions in the German Telefonica and Hutchinson cases in the coming months could define the shape of the European mobile telecoms market for years to come. The rulings will either spark a further wave of consolidation or chill cross-border consolidation for the future.