ComCo, the Swiss Competition Commission has ruled that the merger of France Telecom’s Orange Switzerland with competitor Sunrise, owned by Denmark’s TDC, will not be allowed to go ahead. The regulatory authority said that the merger would give the firm too dominant a position in the Swiss market.

France Telecom and TDC said in a statement that they were “disappointed and surprised” by ComCo’s decision. The firms continued: “The substantial commitments [we] had proposed to undertake would have benefited the Swiss consumer. Without this combination, Swisscom’s dominant position in the Swiss telecommunications market would be maintained.”

Estimates for the end of Q1 2010 from Informa Telecoms & Media put Orange and Sunrise in second and third places in the Swiss market, with 1.56 million and 1.9 million subscribers respectively.  Swisscom leads the three player market, with 5.7 million customers.

FT and TDC had felt that synergies afforded by the deal would enable them to step up investment in infrastructure which would, in turn, benefit the consumer. The companies said last year that they expected savins of €2.1bn to be realised by the merger. They said estimated Opex reductions from network and IT, distribution, marketing and workforce optimisation were expected to reach an annual run-rate of €132m, with cumulative integration costs estimated at €92m. Capex synergies of €376m were projected between 2010 and 2015 with run-rate Capex savings of €43m per year from 2015.

The proposed merger was tabled in November last year, and would have seen Frrance Telecom pay its Danish counterpart €1.5m and become a 75 per cent shareholder in the newly formed joint venture. TDC would have held the remaining 25 per cent. The deal formed an exit strategy for TDC which, under the terms of the proposed deal, would have been allowed to offer its stake for sale to third parties from the second year of operation, or offload its stake through IPO in the third year.

ComCo’s decision is a blow to Orange, following the approval of its merger with T-Mobile in the UK market. But the UK is crowded, with five carriers and a number of MVNOs and it is felt that competition will not be significantly impeded by the merger.

The two carriers are now considering their next steps, their statement said.