Brussels says Orange/MasMovil merger would be anticompetitive

The European Commission has declared that the proposed tie-up between Orange and MasMovil in Spain could harm competition, casting doubt over the likelihood of it approving the merger.

As expected, the Commission on Tuesday published a Statement of Objections to the deal. That doesn’t necessarily mean it will move to block the merger: Orange and MasMovil will now have a chance to address its objections and propose remedies. But the wording of its statement will not make comfortable reading to those hoping for an easing of competition policy when it comes to telecoms M&A in Europe.

“The Commission is concerned that the proposed transaction may reduce the number of network operators in Spain, thereby eliminating a significant competitive constraint and innovative rival in the Spanish retail markets for mobile telecommunications services, fixed internet services and multiple-play bundles (including fixed mobile convergent ones),” the EU’s competition body said, in its statement.

“The Commission is concerned that this may lead to significant price increases for affected retail customers across the Spanish market. Predicted anticompetitive effects are substantial even after taking potential cost savings into account, in a context where competition has been a driving force for investment and quality of services in the Spanish market,” it said.

It seems, therefore, to be sticking with its stance on the need for four-player markets across Europe, which will come as a disappointment to various telecoms groups keen to ease some of the competitive pressure. The Commission has made it clear in recent months that it is in favour of cross-border consolidation – Internal Market Commissioner Thierry Breton for one has had plenty to say on the subject – but it has been less forthcoming about its views on in-market M&A. As such, the Orange/MasMovil deal is being viewed as something of a bellwether for future policy.

Doubtless the telcos themselves will come back with remedies. They, like us, clearly saw this Statement of Objections coming. Indeed, the Commission indicated that it was concerned about the loss of a facilities-based player when it opened its in-depth investigation into the merger back in April.

Commitments on providing wholesale access to virtual players and similar remedies will go some way to smoothing the way in Brussels. But the fact that the Commission has again commented on the number of market players suggests it could go as far as requiring the hiving off of assets to create a new fourth operator. It’s a tried and tested method of protecting competition, that essentially gives the existing players a short period of breathing space before the rivalry ramps up again. Italy is the classic example of that, where the merger that created Wind Tre let in Iliad to disrupt the market at the price-sensitive end.

That’s not great news for telcos, but it’s the sort of outcome that the Commission loves, given that it pushes down prices for consumers.

We’ll have to wait and see what Orange and MasMovil are willing to do in order to get their merger over the line. As will Vodafone, which is set to become the smallest player in both the mobile and fixed broadband markets in Spain if the deal goes ahead, but is simultaneously examining its own future in the country with a view to possibly selling out.

The Commission has until 4 September to publish its final decision in the case. That leaves plenty of time for some serious speculation in the interim.

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