Italian watchdog says Vodafone-Fastweb deal threatens competition

In its latest weekly bulletin, the Autorità Garante della Concorrenza e del Mercato (AGCM) published a fairly wordy summary of rival players' objections to the deal and its own concerns, and outlined some preliminary findings: essentially, the merger would not have any detrimental impact on Italy's mobile market, but there are some competition concerns in fixed, both on the wholesale and retail side.

We already knew that the AGCM had decided to open a phase two investigation into the proposed €8 billion acquisition by Fastweb parent Swisscom of Vodafone's Italian business, announced in March. Swisscom revealed as much last week. We did not know exactly what had triggered the in-depth probe, although the role played by the two companies in the fixed broadband market was always the most likely angle. Now we know those suspicions were correct.

"The Transaction is likely to determine a significant impediment to competition in the market for fixed communication services for residential users, as well as in some specific competitive areas that it appears appropriate to distinguish within it," the AGCM said, highlighting FTTH from a product perspective and urban areas from a geographic standpoint.

The potential for distorted competition comes from the leadership position the merged entity would hold, the regulator said, while also noting that at an overall retail level it would still have a smaller market share than that of incumbent TIM.

In the wholesale space, Fastweb is a minnow compared to the market's two main players, Fibercop – the former TIM business now owned by KKR – and CdP/Macquarie's Open Fiber. Its market share comes in at around the 5%-10% mark, according to AGCM data.

However, as the watchdog notes, it is the only player in the market that also operates in the retail space, and its competitors have expressed concerns in that regard. For the most part, the AGCM dismissed those concerns, but it will investigate further, due to Vodafone being a significant buyer of wholesale services in the fixed market.

Vodafone and Fastweb's rivals have all had their say, sharing concerns over the transaction's impact on all areas of the market. Iliad, for example, was particularly vocal on its potential effect on the retail mobile sector, while TIM and others also voiced fears about unbalanced spectrum allocations linked to Fastweb's fixed wireless holdings, and about mobile wholesale competition.

Ultimately though, the regulator is not concerned; it is focusing its energies on fixed.

It has 90 days to complete its phase two investigation, after which we should know which way it will jump on this deal.

Despite the potential competitive threats it outlined, the smart money is still on the AGCM approving this deal. Its concerns could be addressed with remedies, including additional regulation, if need be.