After feeding off scraps of speculation about M&A in Spain for more than a year, Orange and Masmovil on Tuesday finally served up something substantial.

The deal being negotiated will create a 50-50 joint venture with a combined enterprise value of €19.6 billion, revenues of €7.5 billion and EBITDAaL of more than €2.2 billion. It would boast more than 20 million mobile customers and 7 million fixed-line customers, which, based on data from Spain’s competition regulator the CNMC, would give it the largest market share of any telco in the country.

Orange and Masmovil will have an equal share of governance rights, and neither party will consolidate the merged entity’s operations on its balance sheet. However, the deal will also come with an option for either Orange or Masmovil to trigger an IPO of the venture should certain conditions be met. Were that to happen, it would activate a path-to-control right for Orange to consolidate the business.

“I look forward to creating this joint-venture with Masmovil, building on our existing successful collaboration, to become a stronger player capable of making the investments required to develop the Spanish market,” said a statement from outgoing Orange chairman and CEO Stéphane Richard. “I know I can count on [Orange Spain CEO] Jean-François Fallacher and the entire Orange Spain teams for their full mobilisation until the closing in order to make this deal a success.”

When Richard talks about full mobilisation, that presumably also includes a concerted effort to win over the relevant antitrust authorities. Despite years of lobbying by telcos to the contrary, the prevailing opinion of the European Commission – and by extension local regulators – is that four-player markets are better than three when it comes to the affordability of services, even though telcos insist they can’t generate enough profit to reinvest in their networks. As a result, even in cases where two national operators have been permitted to merge, the approval typically comes with conditions that pave way for the entry of a new player.

As Telecoms.com reported last month, competition is still particularly fierce in Spain, where Orange, Vodafone and incumbent Telefónica have all seen their revenues slide in recent quarters. Hence the aforementioned months of M&A speculation. During this time, multiple reports suggested one of either Orange or Vodafone was on the cusp reaching a deal with Masmovil.

“Operators in Spain have made no secret of their ambition to combine operations in one of Europe’s most competitive markets. It was simply a matter of who would reach an agreement first and when,” said Kester Mann, director, consumer and connectivity at analyst firm CCS Insight, in a research note.

Mann said the deal represents “the first major test of regulators’ appetite for in-market consolidation since the pandemic. The industry has been pinning its hopes on a more lenient stance as the value of high-quality connectivity became ever more apparent. Operators argue that they need greater certainty to make huge investments in future fibre and 5G networks.”

This message is certainly coming loud and clear from Masmovil.

“To assure leading telecom infrastructure in 5G and FTTH as well as outstanding service in Spain, we need strong operators with sustainable business models,” said Masmovil CEO Meinrad Spenger. “The combination of Orange and Masmovil would be beneficial for the consumers, the telecom sector and the Spanish society as a whole.”

Mann expects that if Orange-Masmovil gets the nod it could lead to similar deals being done in the UK, Portugal and Italy. Indeed, Iliad’s Italian unit reportedly made an offer to buy Vodafone as recently as last month.

For now though, all eyes will be on Spain. Orange said it expects to reach a final agreement with Masmovil during the second quarter, and to complete the merger by Q2 next year, subject of course to regulatory approval.

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