Telefonica says EU has ‘missed a great opportunity’ with Orange/MásMóvil decision

The European Commission gave the green light for Orange and MasMovil to merge their operations in Spain yesterday, subject to conditions.

Having aired some concerns that the merger would be anticompetitive, the EU appears to have been satisfied by the proposed remedy package that would see the two firms sell off spectrum assets to Digi Communications, as well as set up a roaming deal, essentially making the MVNO Spain's new fourth mobile network operator. 

You might have expected Telefonica’s response to a big corporate tie up of rivals to be critical of the deal in general. However a Telefonica blog said that ‘The European Commission has missed a great opportunity to adopt an investment-friendly approach that could contribute to Spain's competitiveness challenge, free from regulatory intervention.’

What it appears to mean by this is that the conditions of selling off spectrum assets to Digi represent too harsh terms on the merger – and that in the interests of the telecoms sector being able to consolidate as it believes it should be able to, this presents a high barrier.

“The proposed spectrum remedy prevents Spanish operators from achieving sufficient scale to make large investments in next generation infrastructure. In fact, in June 2023, the Spanish Government modified the spectrum caps precisely to encourage investment in 5G, and the CNMC claimed that 'From a technical point of view, the concentration of radio resources on a smaller number of operators might be desirable, since it would allow them to decongest their networks and improve the services they can potentially offer end users',

“Hence, by imposing conditions on the approval of the Orange/MásMóvil deal, the Commission has prioritized regulatory intervention over the laws of free competition in a well-functioning market and has missed the great opportunity to promote an investment-friendly market structure for telecommunications operators in Spain.”

It goes on to say that "it is time to reflect on whether the EU’s merger rules are still fit for purpose," pointing out that they were last revised 20 years ago, and that the market has changed a lot in that time. It lists risks that have emerged as increasing fragmentation of the single market, the dependence on foreign economies and the overall decline of EU’s industry competitiveness.

“Telefónica believes that the new economic context reflects the weaknesses of the EU Merger Regulation, which should be revised in order to introduce a more comprehensive analysis of consumer welfare, including both the long and the short term," concludes the blog. "This implies the introduction of stronger checks and balances on DG Competition to ensure that merger control decisions are aligned with the EU policy objectives so that opportunities to create connectivity infrastructure ready for the economic and security challenges of the European Union are not missed.”

The fact that the conditions on spectrum mean a stronger Spanish player in the form of Digi might not be irrelevant either. But to take the points at face value Telefonica seems to be saying that the EU should be more hands-off with its regulation when it comes to these sorts of mergers, since heavy conditions does not favour the sort of free flowing market consolidation it advocates for.

The comment comes on the day the European Commission has opened its consultation on the Digital Networks Act. The rhetoric EU Commissioner Thierry Breton has been banging out up until this point has leant more towards ‘cross-border consolidation’ than in-market tie-ups but there could still be good news in it.