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European Commission questions Telefónica Deutschland / E-Plus merger

Christopher Thomas

Christopher Thomas,

Brussels

Ira Valsamaki

05 March 2014
According to the news service mlex, on 27 February 2014 the European Commission adopted a formal Statement of Objections against the Spanish operator Telefónica's plan to buy E-plus of Germany, laying out concerns that deal could harm competition and lead to price increases. The contents of the Statement of Objections are not yet publicly available, and EC spokesman Antoine Colombani stressed that it marked only ''a preliminary step in an in-depth merger investigation''. The parties will have an opportunity to respond to the Commission's objections and to request a hearing. The provisional deadline for the Commission to conclude the review of the transaction is May 14. 

The transaction was notified to the Commission on 31 October 2013. Both parties are mobile network operators and provide mobile telecommunications services to end consumers in Germany, as well as in related markets such as the wholesale market of network access and call origination. In December 2013, the Commission opened an in-depth investigation. According to the Commission, its initial market investigation indicated that the transaction may reduce competition in the retail mobile telephony market as well as in the market for wholesale access and call origination on mobile networks in Germany, where Telefónica and E-Plus currently compete with each other. The transaction would combine two of the four mobile networks in Germany and create a player of similar size to the currently two largest operators, Deutsche Telekom and Vodafone. The Commission had concerns that the transaction could remove an important competitive force and change the merged entity's incentive to exert significant competitive pressure on the remaining competitors. Moreover, it had concerns that after the transaction the remaining MNOs might have fewer incentives to grant access to their network to mobile virtual network operators (MVNOs) and service providers. Always according to the Commission, and on a preliminary basis, prospective and existing MVNOs and service providers would have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms.

In January 2014, the Commission rejected a request from Germany to refer the transaction to the German competition authority for assessment under German competition law. The Commission concluded that it was better placed to deal with the case because of its experience in assessing mergers in the mobile telecommunications sector and the need for a consistent application of the merger control rules in the EU.

The Statement of Objections puts pressure on Telefónica to offer remedies as soon as possible, given the time-consuming process of agreeing with the Commission on the most appropriate measures. In the event that Telefónica decides to do so, this might include the divestment of assets or giving rivals access to its network. Telefónica has until April 2 to propose remedies if it wishes to do so, with some possibility of improving those remedies subsequently. Alternatively, Telefónica might decide to rely entirely on rebutting the Statement of Objections and wait for the final decision of the Commission. If it wished, Telefónica would be able to challenge any adverse decision in Court. 

This case is being followed closely in other European markets, such as France, where mobile consolidation is likely. The case will help determine whether a "four to three" merger of mobile operators is possible, and if so under what conditions.  

Christopher Thomas

Christopher Thomas,

Brussels

Ira Valsamaki

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