Telefónica acquisition of E-Plus gets conditional all-clear

The European Commission has announced the conditional approval of Telefónica’s bid to acquire German operator E-Plus, almost a year after the deal was first announced, which will result in the merger of Germany’s third and fourth-largest operators and reduce the total number of operators in the country to three.

Such consolidation was of understandable concern to the Commission, which is tasked with protecting consumers, in part through ensuring healthy competition. According to Ovum WCIS data, E-Plus currently accounts for around 20.9 per cent of German mobile phone subscribers and O2 Germany, which is owned by Telefónica, has 17.6 per cent of the market as of June 2014. The combined operation would be Germany’s largest with a 38.5 per cent market share, leading T-Mobile with 35.8 per cent and Vodafone with 25.8 per cent.

While this is still clearly a competitive market, the EC has insisted Telefónica make a number of concessions before it gives the green light. It must sell up to 30 per cent of the merged company’s network capacity to up to three MVNOs, to ensure everything stays nice and competitive. It must also give up an unspecified amount of spectrum to some new competitor and it has promised to play nice with its wholesale agreements.

“The remedies to which Telefónica commits ensure that the acquisition of E-Plus will not harm competition in the German telecoms markets,” said Commission VP in charge of competition policy Joaquín Almunia. “Consumers will continue to enjoy the benefits of a competitive market.”

Ovum notes the approval of this deal indicates a softening on Europe’s stance on competition. It had previously pushed through the creation of a fourth operator – Free Mobile – in France, but apparently didn’t count on it being so, er, competitive. The subsequent howls of anguish from the French incumbent operators seem to have been enough to make the EC think three’s not such an uncompetitive number after all.

“O2 is looking to cement its position in a key European market, having recently bowed out of the Czech Republic and Ireland, and this deal would establish it as a new mobile market leader,” said James Robinson, Telecoms regulation analyst at Ovum. “It would, however, cut the number of mobile operators from four to three, while pushing incumbent Deutsche Telekom down into second place and Vodafone into third.

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“Nevertheless, having historically favoured the disruptive nature of smaller players (such as Free Mobile in France), the EC appears to have grown more comfortable with intra-country consolidation within European mobile markets; 3’s acquisition of O2 in Ireland was approved, with very similar conditions, in May, before which it was allowed to purchase Orange’s Austrian unit.”

Opinion is divided regarding the optimal number of operators in a country, and consolidation is a fact of life in any industry as it matures. But with regulators giving operators such a hard time on things like roaming charges in Europe, and operators facing plenty of competition from OTT players, etc, it seems the EC has decided to adopt a more relaxed approach to operator pleurality. For now.