Introduction

On April 10th, the head of Antitrust for the EU, Joaquin Almunia, stated that any review of the successful purchase of Vivendi’s French telecom subsidiary by Numericable will remain with the French Competition Authority.

This is another interesting twist in a long and protracted bidding process involving rival bidders and political involvement in the telecoms sector. It also raises questions about the consistency of the review process of telecoms mergers as well as the Commission’s approach to the sector as a whole, which has seen increased activity in recent months that looks set to continue.

Background

The last few weeks has seen a bidding war for Vivendi’s French telecom subsidiary SFR, with Bouygues, the third largest French mobile provider, losing out to Numericable, a Luxembourg-based cable provider with most activities in France, whose largest shareholder is Altice, the global operation built by French entrepreneur Patrick Drahi.

While both companies had strong rationale for the deal, Bouygues was keen to further solidify its mobile operations in France and increased its bid on numerous occasions in an attempt to fight off Numericable’s interest and future competition. Reportedly, Bouygues proposed the payment of compensation if the deal was blocked by the French Competition Authority. However, Bouygues was unsuccessful and on Friday 4th April, following the three week exclusive negotiating period Vivendi granted Numericable, it was announced that Numericable was the preferred bidder for SFR.

With cable and mobile capabilities in Europe and the Caribbean, the acquisition of SFR will now allow Numericable to gain a strong wireless platform and provide a cable and mobile offering to SFR’s 25 million wireless and broadband customers.

Competition and Antitrust Position of the Deal and the Telecoms Sector in General

Almunia’s confirmation that any review of the Numericable-SFR deal will likely remain in France is an interesting development as it has consistently been the Commission which has held itself out as the correct and proper authority to review telecoms mergers, with prime examples including Hutchison’s purchase of O2 Ireland and the acquisition of E-Plus by Telefonica. According to EU rules on merger control, the Numericable/SFR deal falls within the jurisdiction of the French Competition Authority rather than the European Commission since the Altice group (bidder) and SFR (target) achieve both more than two-third of their revenues in one and the same EU country i.e. France.

While Numericable is not already active in the mobile phone sector, the deal does shed a very interesting light on the competition issues often prevalent nevertheless. For example, had Bouygues’ bid been successful the amount of network-owners in France would have fallen from four to three, leading to the exact same scenario recently seen in Germany, Ireland and Austria where all three deals were reviewed by the Commission who took an aggressive stance.

Currently, the Commission has stopped the clock in its review of the O2 deal with many commentators believing that this may pave the way for Hutchinson to offer an improved package of concessions, including third-party network access. The Commission has also offered a deadline extension for Telefonica to offer its improved remedies in relation to the purchase of E-Plus.

Both of the above deals serve to highlight the issues and intricacies at play in the telecoms sector from a competition standpoint, and in an ultimately unsuccessful bid Bouygues – possibly driven by the antitrust landscape created by the ongoing O2 and Telefonica deals - divested part of its mobile network business to another operator in an attempt to ease competition concerns in relation to its SFR bid.  The Numericable/SFR deal is currently subject to pre-notification contacts between Altice and the French Competition French Authority. The deal will probably go into an in-depth antitrust review (so-called Phase II) including several market tests to conduct and remedies be proposed to address competition concerns as the Chairman of the French Competition Authority has just declared, so that it should not be closed before end of 2014.

Conclusion

The battle over SFR has again illustrated the increased activity in technology media and telecoms sector deals as European companies attempt to strengthen their position in a market feeling increased pressure from operators in North America and Asia.

With the French Competition Authority under no obligation to hand the review to the Commission, and Numericable’s successful bid for SFR not creating the same competition concerns that would have been prevalent had Bouygues won the bidding, it would have been interesting to see what Almunia’s stance would have been had Bouygues been successful.  However, the Numericable/SFR transaction is excepted to create some competition concerns while both parties offer broadband Internet, TV, landline and  mobile phone services. While Altice is the leader for super high-speed Internet services as a cable operator facing Orange who invested in a  fibre network. While SFR is the second  largest mobile phone operator after Orange and in the French overseas island of La Reunion, it is reported to get hold of a 60% market share with SFR.

In any event, the O2 and Telefonica deals should be watched closely by both the legal and telecoms sectors with legal advisors and organisations taking note of the concessions packages required to clear such deals with the Commission.