There is tension in the European Union between those pushing for more economic and political unity and several national governments wanting increased sovereignty. The telecoms industry is part of this battle, and M&A will be at the forefront in the next few years.
It will be harder to get approvals for telecoms mergers & acquisitions (M&A) in the European Union in the next five years than in the previous five. This is due to two factors: the change in guard at the top levels of the European Commission bringing in new ways of looking at things; and emerging evidence of the detrimental effects on competition of mergers which have been allowed. The merger which kicked off the ongoing consolidation reduced the UK market from five to four players in March 2010, but if anything made the market more competitive.
Joaquín Almunia, the EC competition commissioner for five years until November 2014, presided over an intense period of M&A. He and his fellow commissioners’ Euro-centric view of creating a single digital market in the EU favored a smaller number of players per national market, while envisioning vigorous competition between large regional groups. He supported consolidation, with the EU overruling national telecom and competition regulators who feared reducing their market from four to three players would have the anti-competitive effect it proved to have. Examples of this are:
• The merger between Three and Orange in Austria approved in December 2012;
• Three acquisition of O2 in Ireland approved in May 2014;
• Telefonica acquisition of E-Plus in Germany approved in July 2014.
Margrethe Vestager, now in charge of competition issues in the EU, has already made it clear she is aware of reports of rising prices in markets where mergers have been allowed by the EC. Vestager has said it is vital consumers and businesses have access to affordable prices, and noted consolidation is having a negative impact on infrastructure investment.
“I have seen a number of examples of the opposite. So far it seems as if it is still competition that will lead to investment and not the other way round,” she told the Financial Times on March 9, 2015. It appears Vestager is more prepared to look at conditions in individual markets than Almunia was. Four-to-three operator deals which are still in the pipeline are likely to face intensive scrutiny and there is a very real chance some of them could be refused. These are:
• Three acquisition of O2 in the UK;
• Telenor merger with TeliaSonera in Denmark;
• Three merger with Wind in Italy.
There have also been a number of deals which saw fixed, broadband and cable operators merging with mobile operators to create tri- and quad-play players without reducing the number of fixed or mobile operators. These have gone through smoothly and look likely to continue doing so under Vestager as market evidence shows increased competition where permissions have been granted.
For a detailed analysis of M&A activity in the EU and worldwide, see the new report in our Research section by clicking through on the upper right side of the TechPolis.com home page.