Late last year, the EU Commission opened an in-depth investigation into then €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 telecoms providers in Germany. Their proposed merger has raised competitive concerns in Germany where telecoms prices are already high in comparison to other EU Member States.
In its 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.
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. Similarly, Hutchinson in Ireland is purchasing Telefonica’s Irish mobile business and potentially facing similar objections to the German deal as again the market will be reduced from four major competitors to three.
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, otherwise known as Spectrum or instigating measures to protect 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 such as this could result in more price co-ordination and resulting higher prices at a consumer level due to the increased level of transparency from having fewer competitors to watch.
The Commission’s decision is due on 14 May 2014. The coming months and regulatory decisions could define the European telecoms market for years to come if companies are either encouraged, or discouraged to merge.