Vodafone has agreed to acquire Portuguese mobile operator Nowo in a deal clearly designed to help it build some scale in the country.

But while it is looking ahead to a completion date of the first half of next year, there’s a good chance that Portugal’s regulators will want to have a very close look at this deal.

It’s a deal we don’t know a lot about at this stage. Vodafone Portugal simply said that it has entered into an agreement with an entity known as Llorca JVCO Limited, parent company of MasMovil, which itself owns Nowo’s parent. MasMovil was taken over by private equity funds Providence, Cinven and KKR two years ago, incidentally.

Vodafone did not disclose the value of the deal, or any additional details, other than sharing that it will pick up Portugal’s fourth largest convergent operator, with around 250,000 mobile customers and 140,000 pay TV and broadband accounts across a footprint covering 1 million homes.

The deal will provide Vodafone with “greater scale and greater coverage,” it said, in a Portuguese language statement, which certainly plays into its broader strategy of pursuing M&A in Europe. As the telco group put it in its first half report, it is actively pursuing “value accretive in-market consolidation to deliver sustainable market structures” in its major European operations. Admittedly, investors and industry watchers were perhaps looking more for a big disposal, particularly in the wake of Xavier Niel’s investment in the company last month and his Atlas Investissement investment vehicle’s comments on streamlining, but a minor move in Portugal still fits with the agenda.

The issue with this deal is not whether it fits with Vodafone’s plans, but how it sits with the regulator’s targets for market competition.

The transaction “is subject to the necessary regulatory approval,” Vodafone said a couple of times in its announcement, which might indicate that it knows it faces an uphill battle.

MasMovil’s Nowo operates as an MVNO in Spain, but was all geared up to become its fourth MNO through the acquisition of spectrum reserved for market newcomers at the start of 2021; Portugal’s multi-band auction then went on for much longer than anyone could have predicted, so it wasn’t until October that year that regulator Anacom was able to publish the full results of the process.

Anacom’s decision to set aside spectrum for a newcomer was heavily contested by the market’s big three operators – Meo, Vodafone and Nos – but despite various challenges the process went ahead, with the regulator talking up the benefit to competition. As it stands, Meo leads the market with a 40% share, as of the end of Q1 this year, followed by Vodafone and Nos at 29% and 27.6% respectively; Nowo had just 1.9% of the market.

There have been rumblings for some months that MasMovil wasn’t happy with the way things were panning out in Portugal. It was not the only newcomer to pick up frequencies in last year’s sale –  Dixarobil, owned by Romania’s Digi, also bought up a swathe of spectrum – and the European press began speculating that it was planning an exit. In May, for example, Spain’s Expansion reported just that, rumouring that MasMovil could sell out or pursue a merger with Dixarobil.

A merger between the two new players might have been a palatable option for Anacom, but it might not be keen on allowing set-aside spectrum to pass to one of the big MNOs.

The fact that there is another potential fourth mobile operator in Portugal will help Vodafone in its bid to get the regulatory green light, but it is unlikely to be a simple rubber stamp. Expect a regulatory condition on spectrum transfer at the very least.

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