Portugal blocks Vodafone's planned Nowo merger

We knew the decision was coming; the Autoridade da Concorrencia (AdC) issued a draft decision to that effect earlier this year. Its prohibition notice formalises that decision on the grounds that the deal would have brought "significant impediments to competition and consumer harm."

The regulator published a lengthy statement outlining the key issues of the case, but the upshot is that it believes the Portuguese market is already suffering from a lack of real competition from its main operators and the merger would only exacerbate that situation.

Vodafone announced the acquisition – without sharing any details on valuation – of smaller competitor Nowo as long ago as October 2022 and notified the competition body the following month. But we knew even back then that the deal would struggle to win over the AdC.

Aside from anything else, MasMovil-owned Nowo had fairly recently secured 5G spectrum reserved for market newcomers, which caused a regulatory headache from the outset. And then, of course, there was the issue of losing an operator that had the potential to take on the established players, a factor that was intrinsically linked to the setting aside of spectrum in the first place.

At that time Nowo's market presence was limited; it had a share of just under 2% of mobile customers. Today, it still relies heavily on its MVNO offer to provide mobile services and its market share has not increased by much. It had a 2.1% share of mobile handset customers in Portugal as of the end of the first quarter of this year, according to the latest data from telecoms regulator Anacom, making it the country's fifth largest mobile service provider. Lycamobile has a slightly bigger share.

Nowo has a slightly stronger presence on the fixed side, having evolved from cable operator Cabovisao, but nonetheless its share of fixed access was just 2.5% as of Q1, some way distant of the big three – Meo, Nos and Vodafone – whose quotas ranged from almost 42% to almost 32% each.

But this regulatory decision is not really about market share. Swallowing up Nowo would not give Vodafone – ranked third in both mobile and fixed – a disproportionate market share boost.

It is about the fact that the Portuguese market is not working as well as the AdC would like, from a competitive perspective, and the watchdog is keen to avoid making things any worse.

"Structurally, the telecommunications markets in Portugal are characterized by high and heterogeneous levels of concentration across the mainland, with customer loyalty periods and bundled offers further reinforcing barriers to customer mobility between operators, thereby reducing competition and increasing entry and expansion barriers for new operators," the AdC said. "Significant parallelism was identified in the offerings of the three main operators—Meo, Nos, and Vodafone—both in terms of the type of offers and their tariffs," the regulator said, referring to its market investigation related to the merger request.

"Nowo exerts considerable competitive pressure on the other market operators. The merger would lead to significant price increases," it added, suggesting that Nowo could enact price rises of up to 55% for its mobile products and smaller, but still sizeable, increases in its bundled rates. Vodafone price rises would be single-digit, and other operators would increase prices "marginally," it reported. But crucially, the merger would enhance Vodafone's market power, it said.

It also highlighted barriers to entry, due particularly to the concentration of spectrum at Vodafone that would be unavailable to new entrants.

Vodafone had offered to sell its spectrum to Digi, the other new entrant that won set-aside airwaves in 2021, and to provide that same operator with a wholesale offer on its fibre network, but that was not sufficient to ease regulatory concerns.

So, it's a 'no' to the merger, leaving a question mark as to what Vodafone's next move will be in Portugal. The operator group has been consolidating its European operations and the Nowo deal was intended to give it "greater scale and greater coverage" in Portugal, it said when it announced it. Given that it still sits in a distant third place in the market rankings, there could be a new plan to come from Vodafone.