Sacrifices at the Regulatory Altar

Author: Michael Newlands
Published: 2015-07-27

During the past few years, regulators and competition commissioners around the world have tended to look kindly on telecom industry mergers—even the highly-publicized ones between mobile operators which have resulted in markets shrinking either from five to four players or, more commonly of late, four to three. About half of the more than 30 mergers which have taken place since the mega-merger between T-Mobile and Orange in the UK (to create EE) kicked the current round of consolidation off, have been in the EU.

The European Commission has been inclined to approve consolidation in telecoms markets, even when it had to overrule the reservations of national regulators. This has allowed several mobile markets in the EU to shrink from four to three operators, notably Austria, Germany and Ireland (with more mergers in the pipeline and awaiting approval in the UK, Denmark and Italy). In the US, the FCC has refused mergers which would reduce the four national mobile operators to three, despite several attempts at consolidation. Taiwan is the only other country to reject a proposed merger outright, although India allowed one to die from neglect.

But for the majority of M&A cases which have been approved, operators have had to agree to important concessions designed to maintain market competition. We call those sacrifices at the regulatory altar. They have included:

Release of “excess” spectrum. The EE deal in the UK in 2010 saw the new merged entity having to divest 2 x 15 MHz of its 2 x 60 MHz holdings of 1800 MHz spectrum. Return of 900 and 1800 MHz licenses due to expire in 2016, a year earlier than scheduled, to go into the 2015 auction pot was a condition of the 2015 Telefonica/E-Plus deal in Germany as well. These have become a common feature of M&A approvals worldwide.

Provision for a new type of fixed-price, fixed-term wholesale MVNO model (as opposed to MVNOs paying per byte or minute). This was a feature of both the Three/O2 deal in Ireland (2014) and the Telefonica acquisition of E-Plus in Germany (2014).

Disposal of other assets such as pre-paid subsidiaries. As part of the 2012 Three/Orange merger in Austria Yesss (then owned by Orange) was sold to Telekom Austria.

Less angst is being caused to regulators by the increasingly common M&A activity between mobile operators and other types of telecoms and broadcast firms including fixed line, cable and satellite operators. These tend to favor the consumer by creating tri-play and quad-play operators able to offer competitive bundles to customers while leaving the number of mobile players in the market unchanged. However regulators are taking an increasingly hard look at non-mobile aspects of these transactions as well and concessions here have included:

Infrastructure disposal. One example of this was Orange’s acquisition in Spain (2014) of fixed-line operator Jazztel whose fiber to the home (FTTH) network had to be sold for the deal to go ahead.

Giving access to content for rivals. Providing rivals with access to 50% of content was a concession Telefonica had to make when it bought pay TV provider Canal Plus in Spain (2015).

For a detailed analysis of M&A activity in the EU and worldwide, see a new report in our Research section by clicking through on the upper right side of the home page.

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