EU Commission Clears Acquisition of E-Plus by Telefónica Deutschland (O2)

On 2 July 2014, the European Commission has approved Telefónica Deutschland’s acquisition of E-Plus, a subsidiary of Dutch KPN, subject to a number of conditions. Implementation of the transaction will reduce the number of mobile operators from four to three in Germany. In terms of customer count, Telefónica will lead the market, followed by Deutsche Telekom and Vodafone.

Initially, the EU Commission had expressed its concerns about the merger of two close competitors likely to weaken the position of other service providers and MVNOs and potentially leading to higher market prices. In response to these concerns, Telefónica agreed to sell up to 30% of the merged entity’s network capacity to one or several MVNO(s) and to divest radio spectrum and other assets either to these MVNOs or to a new MNO market entrant. The merger is also conditional upon offering 4G services to the wholesale market and the existing wholesale agreements of Telefónica and E-Plus with other wholesale partners being extended.

Telefónica announced that it has already entered into a deal on access to the mobile service with MVNO Drillisch AG acquiring 20% of the merged company’s network capacity and the right to acquire another 10%. The merged entity will be led by Thomas Dirks, former CEO of E-Plus.

The FAQs accompanying the Commission's press release is noteworthy on a point beyond the actual merger case: In the recent past, it has been stated on various occasions (inter alia by German chancellor Merkel) that European and national competition rules might prevent a consolidation of the European telecoms industry along the model of the US market and thus might be an obstacle to infrastructure investments. In particular, there have been calls for a loosening of competition rules for the telecoms sector.

In the FAQs, the Commission directly responds to these allegations by stating that competition rules were not the key obstacles that keep telecoms companies from investing. Rather, the Commission finds the fragmentation of European telecoms markets to be the actual problem. It was the lack of a genuine European regulatory framework for the telecommunications industry which set Europe apart from homogenous markets like the US and China. Reforming the competition rules to make it easier for telecoms operators to merge behind national borders therefore was not the solution.

In a nutshell (and according to the European Commission) more regulation, not less regulation is the key.

Press release: http://europa.eu/rapid/press-release_IP-14-771_en.htm

FAQ:  http://europa.eu/rapid/press-release_MEMO-14-460_en.htm