The trend for increased consolidation in the European telecoms sector continues, with control of PT Portugal – the former Portuguese telecommunications incumbent – recently being acquired by Altice, a multinational cable and telecommunications company with a presence in France, Belgium, Luxembourg, Portugal, Switzerland and Israel, as well as certain overseas territories.

Merger details

The merger was notified to the European Commission on February 25 2015 and cleared on April 20 2015 under Article 6(1)(b) of the EU Merger Regulation, subject to conditions and obligations, with the transaction closing at the beginning of June.(1)

Altice has two subsidiaries in Portugal:

  • Cabovisão – an operator that provides pay-television, fixed internet and fixed telephony services to residential customers, based on its own hybrid fibre-coaxial cable network; and
  • ONI – a provider of communication services to business customers.

Given the significant overlap with the target's activities in the residential and business sectors, the merger was expected to have significant horizontal effects, reducing competition in the provision of retail communication services sold both as stand-alone retail offers and as multiple-play bundles.

In particular, the overlap in network coverage between Cabovisão and PT Portugal was expected to raise competition concerns in several local markets for the provision of communication services, especially triple and quadruple-play retail offers. According to certain estimates, in the geographical area covered by Cabovisão's fixed network (encompassing approximately 100 municipalities), the integration of Cabovisão's operations with those of PT Portugal would lead to a fixed network monopoly in one-third of those municipalities and a duopoly in another third. In the remaining municipalities, competition based on fixed networks would be reduced from four to three suppliers.

The merger would strongly reinforce PT Portugal's dominance in the markets of practically all fixed network communication services, with market shares ranging from 50% to 100% in at least 18 districts in mainland Portugal with the offer of double and triple-play service bundles. Further, given the fact that Cabovisão did not possess a mobile operation, it is likely that the merged entity would focus its commercial efforts on the accelerated upselling of triple-play customers to higher-value quadruple-play service offers.

Nevertheless, these concerns were overcome by Altice's willingness to offer structural commitments – namely, the divestment of both its subsidiaries on the Portuguese market. The sale of these operations will remove the overlap between the activities of Altice and PT Portugal, thereby eliminating any horizontal concerns which the commission might otherwise have had.

In the light of these commitments, the commission found it unnecessary to reinforce their effectiveness by imposing behavioural measures on the merged entity, despite the fact that it may not prove easy to reintroduce a fourth autonomous operator to the Portuguese market (especially if it has no adequate access to a mobile network enabling it to offer competitive quadruple-play service bundles).

A financial consultant has been appointed as monitoring trustee to assess Altice's compliance with the commitments and report to the commission on the progress of the divestment process.

Comment

Although a non-confidential version of the conditional clearance decision is not yet available, aspects of the case raise interesting questions.

Regarding the structural commitments accepted by the commission, the Altice/PT Portugal decision differs somewhat from the assessment of the risks to competition that seems to have been made in a similar transaction involving a four-to-three merger in an Iberian market – Orange's acquisition of Jazztel, a telecoms company active mainly in Spain.(2) This deal was also conditionally cleared by the commission on May 19 2015 following a lengthy phase II investigation, as the merger was notified in October 2014, resulting in a seven-month assessment procedure by the commission (as opposed to the two-month phase I clearance in the Altice/PT Portugal transaction).

In the Orange/Jazztel merger, which brings together the third and fourth providers of fixed telecommunications services in Spain (ie, fixed broadband internet access), the commission noted that the two companies were particularly dynamic competitors, as they were the only nationwide operators to have increased their market share in recent years and had a higher share of net adds in the fixed broadband internet market than their market shares. Despite the commission's strong concerns that the merged entity would have fewer incentives to compete aggressively, as would the two remaining major competitors in a three-way market – Telefónica and Vodafone – it accepted commitments from Orange as the basis of a conditional clearance.

Contrary to the decision in the Altice/PT Portugal merger, these commitments were both structural and behavioural, involving:

  • the divestment of an independent fibre-to-the-home (FTTH) network covering 700,000 to 800,000 building units;
  • the provision to the purchaser of that FTTH network for up to eight years of wholesale access to Jazztel's national asymmetric digital subscriber line network; and
  • wholesale access to Orange's mobile network, including 4G services (in order to allow a new entrant to compete on the Spanish internet market on the basis of bundled retail offers).

Regarding the divestment of Altice's subsidiaries Cabovisão and ONI, it will be interesting to see whether this generates interest from other telecoms operators already active in Portugal or from a wider spectrum of potential investors. Further, it remains to be seen to what extent this divestment process will prove adequate as a means of ensuring the continued existence of four competing fixed-network operators.

Both cases have confirmed the trend for the commission to reject referral requests from national competition authorities under Article 9(2)(a) and (b) of the EU Merger Regulation. This occurred recently in the Liberty Global/Ziggo and Telefonica Deutschland/E-Plus mergers.(3)

Thus, even where the competitive effects of a concentration are limited to national and sometimes local markets, the commission has consistently affirmed its jurisdiction to assess mergers in the telecommunications sector on the basis of its extensive experience in the sector (which is often rivalled by the equivalent experience of national competition authorities) and the need to ensure the consistent application of EU merger control rules.

For further information on this topic please contact Gonçalo Machado Borges at Morais Leitão Galvão Teles Soares da Silva & Associados by telephone (+351 21 381 7400) or email (gmb@mlgts.pt). The Morais Leitão Galvão Teles Soares da Silva & Associados website can be accessed at www.mlgts.pt.

Endnotes

(1) Case M7499 – Altice/PT Portugal.

(2) Case M7421 – Orange/Jazztel.

(3) Cases M7000 and M7018 respectively.

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