Orange-MasMovil tie-up tests regulatory waters

Orange and MasMovil have agreed to merge their operations in Spain via a multi-billion-euro deal that will test the willingness of European regulators to accept in-market consolidation.

The two telcos announced a binding agreement to merge their businesses to create an entity with an enterprise value of €18.6 billion, slightly lower than the figure they shared when they first announced their exclusive talks to that end in March. The resulting entity will be a 50:50 joint venture between Orange and MasMovil, with each party having co-control and equal governance rights.

However, the Ts and Cs include the right for both to trigger an IPO after a certain length of time – they didn’t specify how long – and for Orange to take control of the unit at the IPO price, should it so desire.

Naturally, the operators waxed lyrical about the benefits of the transaction to the broader Spanish market, noting that the efficiency gains generated through the merger would allow the new entity to accelerate investments in FTTH and 5G. And that’s good news for Spanish consumers, of course.

It’s also not terrible news for the telcos’ rivals, despite the fact that merged entity will become a competitive force to be reckoned with in a market that has recently been finely balanced between its main players (see chart). Together, Orange and MasMovil will serve more than 43% of Spain’s mobile market and over 42% of its fixed broadband customers, based on April 2022 figures from regulator the CMNC.

But competition has been fierce in Spain for some time, with Telefonica, Orange and Vodafone all reporting ongoing difficulties in the market at recent results announcements, albeit alongside the insistence that things are picking up.

Market consolidation would surely aid even the players not involved in it, simply by stabilising prices and taking some of the heat out of the competition.

But with competition regulators having historically come down on the side of the consumer, the prospect of higher prices might not sit well with those charged with giving the deal the green light…or not.

The European Commission in particular has been keen to retain a four-player structure in Europe’s mobile markets, but it is some time since it has had to rule on a major deal; that is, a deal like the one proposed in Spain that significantly changes the balance of the market. It is possible that Brussels has changed its tune in recent years and accepted that telcos in some markets are struggling. Then again, the cost-of-living crisis perhaps tips the balance in favour of consumers and makes the prospect of even a small price hike unpalatable to the powers that be.

Whatever the outcome, it will not only affect Spain. There has been talk of M&A in a number of major European markets, including the UK and Italy, in recent months. The Orange/MasMovil deal is a canary in the mine here, and industry watchers will be glued to developments.

It could be some time before we have an outcome, though. Orange and MasMovil say they expect the deal to close in the second half of 2023 “at the latest,” a timescale that suggests they anticipate significant regulatory scrutiny.

They remain upbeat though, of course.

“I strongly believe that the creation of this new company is of fundamental importance for the group, the Spanish telecoms market, and for our customers,” said Christel Heydemann, Orange chief executive.

“This is a great day for Spanish consumers as well as for our stakeholders,” added Meinrad Spenger, CEO of MasMovil. “We anticipate this will drive competition, digitization, and innovation in the Spanish market,” he said.

Let’s see if the regulators agree.

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