EU approves Orange/MasMovil merger but implications for broader consolidation unclear

While it is tempting to view the green light from Brussels as a sign that in-market consolidation could now occur across Europe, it would be premature to do so. The decision is good news for the parties involved, but it may not have a broader knock-on effect; the EU still seems pretty set on four-player markets.

Realistically, we already knew that. We knew that Orange and MasMovil had proposed a remedy package that involved the sale of spectrum assets to Digi Communications, and a roaming deal to go with it, essentially setting up the MVNO as Spain's new fourth mobile network operator. Unsurprisingly, the European Commission, which had made it clear it was concerned about the impact of the deal on market competition, went for it.

"Orange and MásMóvil's joint venture threatened competition in the retail supply of mobile and fixed internet services in Spain. But the commitments offered by the parties will enable Digi, the largest and fastest-growing mobile virtual network operator in Spain, to replicate the strong competitive pressure exerted by MásMóvil," said Margrethe Vestager, EVP in charge of competition policy at the Commission. "They will ensure that consumers in Spain continue to benefit from a competitive telecom market, in terms of prices, quality and 5G connectivity.”

Those commitments will see MasMovil sell spectrum in three bands – 1800 MHz, 2.1 GHz and 3.5 GHz – to Digi to enable it to build out its own mobile network. Separately, the merged entity must allow Digi to roam on its network, but Digi is free to carry on using the Telefonica network, as it does for its virtual service, or choose another mobile operator – essentially Vodafone – should it so desire.

However, despite Vestager's reference to competition in the fixed Internet market, the Commission did not requires remedies there. Indeed, it noted that Digi already has "a relatively large, fixed broadband (fibre) network in Spain, which it continues to build." Therefore, the merged entity is not required to sell any fixed broadband assets.

"This represents a positive result from Orange's perspective, which had to divest significant fibre assets to acquire Jazztel back in 2015," said James Robinson, Senior Analyst at Assembly Research.

Orange is indeed upbeat on the news.

"Our proposed joint venture with MasMovil will create a single, stronger, and more sustainable player in Spain. By joining forces, we can scale, we can innovate, and we can drive investment in Spain for the benefit of consumers and businesses," said Orange CEO Christel Heydemann, essentially reiterating what the telcos have said all along.

There was a similar comment from Meinrad Spenger, CEO of MasMovil, who also added that "all good things are worth waiting for!"

And it has been quite a wait. Orange and MasMovil announced their JV plans in July 2022, after much speculation to that effect in the industry. The past 18 months have given rise to endless speculation firstly about whether the EU would approve the deal and secondly, what that would means for the likelihood of more in-market consolidation in Europe.

But Brussels' keenness to establish Digi as a fourth, facilities-based player in Spain suggests it is not ready to take the plunge and accept a three-player mobile market. Yet.

"In line with its decision in Wind/Tre in Italy, the EC required a 'fix-it-first' remedy to facilitate creation of a new mobile network operator, Digi," said Assembly's Robinson, referring to the merger that created Wind Tre and triggered the launch of market disruptor Iliad almost six years ago.

"However, in Italy, intense competition and low-to-zero service revenue growth has prompted attempts at reconsolidation of the market, which could call into question whether the EC's high bar for merger approval was appropriate," said Robinson.

Iliad was recently rebuffed by Vodafone when it proposed a 50:50 merger in Italy, but the jury's still out on Voda's next move. It is still in talks with other parties, which could mean more intense EU scrutiny. However, the favourite is fixed broadband player Fastweb, which would probably bring an easier ride from the regulators.

Meanwhile, all eyes are on the proposed Vodafone/Three tie-up in the UK, where the Competition and Markets Authority (CMA) is currently scrutinising the potential impact of the deal, a process that is scheduled to run for some time yet. While the CMA, Ofcom and other relevant parties in the UK will have a close eye on the Commission's decision on Orange/MasMovil, all markets are different and we cannot necessarily draw any conclusions from it.

Furthermore, as Kester Mann, Director, Consumer and Connectivity at CCS Insight notes, the fact that Orange/MasMovil had to sell mobile assets to get the deal across the line may be giving Vodafone and Three pause for thought.

"If Vodafone and Three are required to do similar, they would be reliant on finding a willing third-party to complete the deal. That may not be easy," Mann said.

The bottom line is that this is good news for Orange and MasMovil, if not so much for their Spanish rivals; the JV will have more than 30 million mobile customers, 7.3 million fixed customers and 2.2 million TV users, Orange says.

But it is not necessarily a harbinger of easier regulatory times to come for European telcos in general. The European Commission has not softened its stance on four-player markets, as far as we can tell, and the next merger attempt will be just as clouded in speculation as this one was.