The economic recovery is gradually giving rise to a corresponding increase in M&A activity. That also applies to the TMT sector: the (traditional) telecom sector in particular is showing a significant trend of consolidation. Apart from the acquisition of Online Breedband, a former subsidiary of T-Mobile, by M7 (which also owns Canal Digitaal) and KPN’s announced purchase of the remaining 50% of the shares in Reggefiber, there have been few transactions on the Dutch telecom market so far. But there has been a great deal of speculation about possible acquisitions. Telecompaper, for instance, believes that the recently acquired M7 and fibre optic network operator Eurofiber are obvious takeover targets. There has also been speculation for some time already about the acquisition of Tele2. The same applies to the possible takeover by Vodafone of Liberty Global, the owner of Dutch cable operator UPC. The acquisition of SBS Nederland by Liberty Global has also very recently been rumoured.
It recently became known that KPN expects that there will ultimately be room on the Dutch market for two combined fixed/mobile network operators (in any event including KPN itself) and one additional Mobile Only player. A significant consolidation effort will have to be made to achieve that. Almost all the transactions involved will have to be approved by the European Commission or ACM (Netherlands Authority for Consumers and Markets). That gives rise to the question whether and, if so, to what extent competition law might stand in the way of certain transactions.
Three MNOs not always enough
Some years ago OPTA, ACM’s predecessor, published a working paper with the provocative title “Is two enough?”. The paper addressed the market(s) for fixed communication services. The outcome of the resulting discussion was that two fixed network operators (i.e. KPN and cable) would most likely not be enough. The Hutchison (H3G)/Telefonica Ireland (O2 Ireland) and Telefonica Deutschland/E-Plus cases demonstrate that in the Commission’s opinion even three MNOs (Mobile Network Operators) is not always enough. Both cases related to 4-to-3 mergers and in both cases the Commission feared that as a result of the mergers a small(er) but innovative MNO, and therefore an important disciplining factor, would disappear from the market, thereby increasing the costs of mobile network services for end users.
The Commission made its approval of the transactions subject to a number of remedies in both cases. One of those remedies was that H3G and Telefonica Deutschland must first sell part of their network capacity at a fixed price to two new parties (referred to by the Commission as Upfront MBA (Mobile Bitstream Access) MVNOs). Unlike in the case of typical pay-as-you-go contracts (whereby the MVNO pays a fee based on the actual network usage), the Upfront MBA MVNOs would then have a greater incentive to develop appealing propositions. Since the MVNO must undertake beforehand to purchase certain capacity, it has a financial interest in making optimal use of that capacity.
Commission heedful of exclusion on vertical integration of network and content
Another transaction that has generated a great deal of attention, also in the Netherlands, is Liberty Global/Ziggo. In the Netherlands Liberty Global owns not only UPC, but also Dutch (linear) premium TV service Film1. Ziggo is the largest Dutch cable operator as well as one of the owners of HBO Nederland, the only other linear premium TV channel in the Netherlands. UPC and Ziggo operate in different geographic areas. There is therefore no overlap between those parties’ activities on the retail markets for broadcasting, broadband and telephony. Earlier this year the Commission nevertheless decided to perform a thorough investigation. It was concerned about e.g. (i) the possible exclusion of Over-The-Top (OTT) TV channels (such as Netflix) and (ii) the procurement market for audio-visual content. According to the financial press, Liberty Global, in order to nevertheless obtain approval, has now offered to sell its premium service Film1 and not to block use of its network by Over-The-Top (“OTT“) channels (such as Netflix).
Commission views complementary portfolios favourably
The Commission is usually more favourably disposed to telecom providers with complementary portfolios. It stated, for instance, with regard to the approval of the acquisition of Kabel Deutschland by Vodafone that that takeover allowed Vodafone to develop more appealing Triple and Quadruple Play propositions. Also in the Ziggo/HBO case the Commission believed that the transaction would actually increase competition in the field of the wholesale of premium television. The Commission was also favourably disposed to the acquisition of Spanish cable operator Ono by Vodafone.
Lessons to be learnt by the Dutch market
Lower profit margins and turnover, increasing competitive pressure from OTT players and major network investments will be important drivers of new acquisitions in the Dutch telecom sector. Since each transaction will have to be assessed on its own merits (also under competition law), no general rules can be given as to what is and is not permissible. It can, however, be concluded from recent decisions of the Commission that mergers between MNOs will be critically viewed. The Commission is also heedful of possible foreclosure effects, particularly with regard to content. On the other hand, transactions that lead to an expansion of activities, thereby allowing an operator to better anticipate new market developments (such as Quadruple and Triple Play), are often considered pro-competitive. All in all, it would therefore appear that there is still room for consolidation on the Dutch market.