The European Commission has launched an in-depth investigation into the proposed merger between Orange and MasMovil, concerned that the deal could harm competition in Spain.

The broader telecoms industry is watching this case with interest as M&A talk once again gathers pace in Europe. And the wording of the statement issued by the Commission on the matter is not particularly encouraging for those keen to bulk up.

“The transaction would reduce the number of network operators in Spain, thereby eliminating an innovative and significant rival. This could lead to higher prices and lower quality of telecom services for customers,” the Commission said.

While many had been hoping that Brussels would loosen its stance on facilities-based competition and move away from its previous insistence on four-player telecoms markets, the above seems to suggest that very little has changed.

Indeed, the Commission noted that Orange and MasMovil are the second and fourth largest players respectively in Spain’s wholesale and retail markets for fixed broadband and mobile telephony, and specifically are close competitors at the retail level in mobile, broadband and multi-play. As such, it is concerned about the loss of a player impacting on consumer prices and choice, as well as noting that at the wholesale level the merged entity would be able to restrict access for virtual operators, again with an impact on prices.

That last point is probably fairly easily addressable through the imposition of certain conditions or remedies on the merging operators. The issue of a four-player market though leaves a bigger question mark over Orange and MasMovil’s ability to get their deal over the line.

The telcos agreed to create a 50:50 joint venture in Spain, with an enterprise value of €18.6 billion, last July. They made all the right noises about the resulting efficiency gains enabling the merged entity to accelerate investments in fibre-to-the-home (FTTH) and 5G, all to the benefit of Spanish consumers.

But we knew then that it would be a tough sell, from a regulatory point of view. The deal significantly changes the shape of the Spanish market, creating a new dominant player that would be significantly bigger than incumbent Telefonica and Vodafone in both mobile and fixed broadband, in retail market share terms, at least.

We have in the past seen similar deals where the European Commission has required that the merging companies facilitate the entry of a new player to the market. Italy is a prime example, the tie-up between Wind and Tre bringing about the launch of Iliad Italia in May 2018, and we all know how that panned out. Hint: the newcomer disrupted the market and arguably brought down prices to an unsustainable level.

Competition has also been fierce in Spain in recent years, hence the desire for M&A in the first place. But Brussels does not normally concern itself with the business rationale for mergers and acquisitions, focusing squarely on the consumer.

A statement issued by the European Commission’s Executive Vice-President in charge of competition policy, Margrethe Vestager, highlights that focus:

“MasMovil has been a successful challenger to Orange and other operators in recent years. This is why we are opening an in-depth investigation into the merger between MasMovil and Orange. We want to ensure that Spanish consumers continue to benefit from affordable and high-quality telecom services, including from virtual operators that need competitive wholesale access to fixed and mobile networks in order to offer their services in retail telecom markets.”

Vestager’s words suggest that very little has changed at the Commission. We’re either looking at a blocked deal or some very stringent remedies here. It’s anyone’s guess which though.

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