Month: December 2014

The European Commission stops easy consolidation in the telecom markets

Posted on Updated on

6862_paella

The European Commission has started a Phase II investigation regarding an envisaged concentration in the Spanish telecommunications market, regarding the acquisition of Jazztel (a pure fixed operator) by Orange (a Spanish subsidiary of the French incumbent delivering both fixed and mobile services). The decision to open the investigation has been published via a PR.

This case it quite interesting because it is the first time that the competitions offices of the European Commission raise doubts about a merger between altnets in a fixed market. Normally concerns have been raised frequently only in the mobile market (although deals have been finally authorized with remedies) or in the fixed market, when the merger concerned the incumbent (like in the Nordic markets). So far, a pure merge between fixed alternative operators did not encounter any particular issue (for instance, some fixed operators have been bought by Vodafone, recently in Germany).

Why DG COMP is taking now a different views?

Firstly, the Spanish fixed market is highly concentrated, with few independent ISPs competing amongst them and with the incumbent. Spain is similar to France and Portugal, where similar level of market consolidation already exist, but less to Italy, Germany and UK, where there are still plenty of operators (especially in the UK). Thus, a national merger in a high concentrated market creates a competition alert for the European Commission.

Secondly, the Spanish market is driven by triple/quadruple play offers. Therefore, the reduction of competition resulting from the merger may not be compensated by potential new entrants, unless the latter may also compete on the mobile side. This is however unlikely, since the number of mobile operators is limited by frequency scarcity, and there is no effective obligation to grant MVNO access to competitors.

How could it end up?

It is difficult to believe that the European Commission will ban the proposed merger, one should however wonder which remedy could be proposed to let the operation to go through. There might be various hypothesis:

– a MVNO access obligation on the merged entity (such as happened in the latest mobile mergers in Germany, ireland and Austria)

– a light fixed access obligation on the merged entity (this would be a leading case, then)

– a request to the Spanish telecom regulator CMT to promptly review market regulation, with possible outcome resulting in regulation over incumbent Telefonica (or other operators operators, if a collective dominance is found).

Whatever will be the result, the signal launched by the offices of DG COMP is clear: against the political mantra whereby the European telecom sector needs consolidation – at all cost – to increase margins and profits, the antitrust supervisor reminds that competition and consumer interest cannot be affected at all. This is not a change of view by the side of DG COMP, which also with Almunia was reluctant to authorize national mergers (instead of cross-borders ones), although they did it at the end. The new Competition chief, the Danish Vestager, seems to say that the time of political compromises is ended and that competition is not a matter to be driven by politicians.