The new European Commission’s application of anti-trust rules is facing challenges from Europe’s powerful telecoms sector, as a round of mega-mergers takes shape in the United Kingdom.
Hutchison, which already owns the UK’s fourth largest mobile phone operator, 3, is in the final stage of a €12.5 billion bid to buy Telefónica’s UK unit O2, the second largest in the market. At the same time, BT, the UK’s main fixed-line operator serving 40% of landlines, has been negotiating a €17bn deal to buy the UK’s largest mobile operator by subscriber numbers, EE, which is a joint venture between Deutsche Telekom and Orange and holds 33% of the mobile market.
The previous European Commission controversially endorsed a set of mergers in the German, Austrian and Irish telecoms markets, in the face of warnings from outraged national regulators that consumer prices would soar. Those precedents are being invoked by Hutchison, which is now seeking approval for a deal that would create the UK’s largest mobile operator, and would cut the number of mobile network operators from four to three.
BT wants the UK competition authority to review its deal, which it finalised last week (4 February). However the Commission could seek to conduct the review, given the size of the transaction, which will also hand Deutsche Telekom a 12% stake in the UK incumbent.
Assessing the mergers will prove a particularly thorny task for regulators since the UK is widely considered an example of how a competitive telecoms market benefits consumers. Nor is it obvious in what order they will assess the transactions. Which?, the UK consumer body, has already warned that “fewer players in any essential market is rarely good for consumers”. Yet the Commission is determined to boost Europe’s supposedly ailing telecoms sector, which it considers crucial for Brussels’s digital strategy.
Europe’s largest telecoms operators have repeatedly criticised as “suffocating” the conditions on mergers that were imposed by Joaquín Almunia, European commissioner for competition 2010-14, and they have been braying for a relaxation of EU rules to allow them to grow and invest. Investors in the sector celebrated the arrival of the new Commission, in the expectation of greater permissiveness over consolidation.
But Almunia also came under fire from consumer lobbyists and national regulators, who argued that the conditions he imposed on operators were too weak. “The Commission’s toothless access remedy (designed to help non-network operators enter the market) did not prevent sharp price increases,” said Antonios Drossos of Rewheel, a telecoms consultancy, referring to the conditions imposed on 3’s purchase of T-Mobile in Austria. Mobile internet prices in Austria have doubled since, he added.
The Irish antitrust regulator described similar conditions imposed on the consolidation in Ireland as “inadequate” and “ineffective”. Germany’s regulator also opposed the Commission’s approval for a merger there, warning that prices would rise. Of particular concern in the UK case, warns Which?, is that 3 has operated as a challenger in the UK market, competing strongly with its larger rivals on price and services.
November 2014 – Vestager takes reins as commissioner for competition
July 2014 – Almunia clears German deal between Telefónica and E-Plus
May 2014 – Almunia approves Irish merger between Three and O2
December 2012 – Almunia okays Three’s takeover of T-Mobile’s Austrian unit
Margrethe Vestager, the commissioner for competition, has ready access to plenty of detail on the strengths and pitfalls of the last regime because Lindsay McCallum, her deputy head of cabinet, oversaw those merger reviews as a director in the Commission’s department for competition. She may be tempted to put pressure on the UK Competition and Markets Authority to pass the BT deal upwards to her level.
Vestager has already opened an in-depth probe into a similar Spanish transaction that would combine a mobile operator – Orange’s Spanish unit – and a fixed operator, Jazztel, allowing the new entity to bundle together mobiles with pay-tv and broadband. She has twice rejected requests by the Spanish competition authority which wants to review the €3.4bn bid for Jazztel.
The structure of BT’s deal may also pique the Commission’s interest. The news that Deutsche Telekom will take a 12% shareholding in BT and a seat on its board sparked speculation that this could be the first step towards far-reaching cross-border consolidation.