The hands of China over Telecom Italia: how antitrust rules may perturb the deal

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Immagine

The envisaged purchase of a controlling stake of Telecom Italia by Chinese investors (Hutchison) is shaking the debate about the future of the Italian telecommunications market, and also raising questions about consequent implications: will Telefonica stay or leave? Should Telecom Italia’s fixed network be separated? And so on.

However, a preliminary analysis should be dedicated to the fact that antitrust authorities (the European Commission, eventually in coordination with the Italian competition authority) will have a say on the entire operation. To time, an authorization to the merge appears unlikely, at least on the basis of the information publicly available.

Hutchison is reported to contribute its Italian assets, i.e. the company 3 Italia (a mobile operator owning around 10% of the Italian mobile market) into Telecom Italia, so as to get a corresponding shareholding. The industrial integration resulting thereof is likely to rise competition concerns, because of the relevant market position of Telecom Italia in Italy (being the biggest operator in the mobile market, together with Vodafone, and the dominant one in the fixed). A consolidation of the market to the benefit of a dominant player will not be welcomed by antitrust authorities, while a similar operation taking place amongst minor players would have more chances to succeed. To make an example, last year in Austria a merge between two minor players (Orange and Hutchison, respectively n. 3 and 4 in the Austrian mobile market) was finally cleared, although with difficulties and subject to the imposition of specific remedies (a mandatory MVNO access, inter alia). Therefore, it is unlikely that a merge between Telecom Italia (the n. 1 in Italy) and 3 Italia (the n. 4 in the mobile market) will receive an easy green light.

Remarkably, this is a problem not only for Telecom Italia. The other Italian mobile players, namely Vodafone and Wind, would welcome 3 Italia to disappear by whatever merge, because this operator is the more aggressive one in the market in terms of tariffs. The consolidation of the market into only three operators (Telecom, Vodafone and Wind) would decrease competition and allow the operators left to stabilize their businesses and maybe even increase prices.

Telecom Italia is well aware of the above antitrust constraints and since months, supported by other historical operators such Dutsche Telekom ecc., is going around in the EU claiming that the European Commission (namely DG Competition headed by Commissioner Almunia) should lift mergers conditions in order to favour  industrial consolidation and especially market integration. This campaign is however based on fragile assumptions: in order to enhance markets integration, Telecom Italia and other incumbents should propose cross-border merges (i.e. between operators based and operating in distinct European markets), not transaction taking place within national borders. Even Almunia confirmed in various occasions that national consolidation is not helping European integration, while cross-border merges would.

(in other posts in my blog I explained that European historical operators have no interest in European integration, since they can extract more profits from territorial fragmentation, like in the case of international roaming)  

To conclude: the purchase of Telecom Italia’s stake by Hutchison cannot take place by way of exchange and integration with 3 Italia. The Italian subsidiary of the Chine Group will likely need to be sold to a third party to let the entire transaction to go ahead. A potential purchaser will likely be an operator already present in Italy, which could get benefits from the integration. It could be the case of other mobile operators (Wind), fixed altnets (Fastweb, Tiscali or BT) or even MVNOs wishing to climb the infrastructure ladder. Therefore, Telecom Italia will have to be carefull in order no to reinforce too much the competitors.

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