Analysis: Orange-MasMovil deal a test case for European telecom tie-ups

Hutchison Telecommunications Hong Kong Holdings

25/07/2022 13:18

* EU regulators have taken a tough line on telecom mergers
    * But may be open to deals that cut debt, invest in 5G
    * Spanish deal likely watched in France, Italy, UK, others

    By Supantha Mukherjee and Foo Yun Chee
    STOCKHOLM/BRUSSELS, July 25 (Reuters) - Orange  ORAN.PA  and
MasMovil's  MMBMF.PK  $19 billion Spanish telecom merger is set
to be a test case for whether Europe's antitrust regulators have
become more lenient in approving deals that reduce the number of
mobile operators.
    Buried under debt in small, highly competitive markets,
Europe's telecom operators have been talking about consolidation
for years but were wary of scrutiny by regulators, which have
taken a tough line on any moves that lower competition.
    The pandemic, however, has underscored the importance of
telecom networks, and regulators may have become more
sympathetic to mobile operators trying to cut debt through
mergers and invest in new 5G services, industry analysts say.
    "It's a real litmus test for the sector that could open up
the doors for other opportunities," said CCS Insight analyst
Kester Mann. "It's going to be closely watched by other
operators."
    Approval could pave the way for similar deals in Britain,
France, Italy and Portugal that would reduce the number of
players in the market to three from four, analysts say.   
    The Orange-MasMovil tie-up, between Spain's second and
fourth largest telecoms operators, is the first big deal since
the European Commission blocked CK Hutchison's $12.6 billion
purchase of Telefonica's British mobile unit O2 in 2016.
    Since then, Europe's telecoms deals have focused on adding
subscribers or capacity without changing the competitive
landscape. But the Spanish merger is big enough to face a
full-scale, four month investigation by the Commission after a
preliminary review, industry sources told Reuters.
    The Commission did not immediately respond to a request for
comment.
    Regulators are concerned mergers could lead to higher
prices, less choice and a reduction in quality for consumers,
particularly if two players join forces in one market.
 urn:newsml:reuters.com:*:nL4N2US29A
    MasMovil does not have a large mobile network in Spain and
is confident demands made by regulators as a condition for
approving the deal would not be too onerous, according to
sources directly involved in the process. 
    Orange will seek to counter possible regulatory concerns by
pointing to the rollout of fibre in Spain and the expansion of
mobile companies into areas such as broadband as proof of strong
competition in the country, a person familiar with matter said.
    The companies aim to take the combined business public in
three to four years, after closing the deal the second half of
2023.  urn:newsml:reuters.com:*:nL1N2Z403X
    
    FOUR BECOMES THREE
    In Europe, many countries have four telecom operators
jostling for share in small markets, which usually equates to
lower prices for consumers but less profit for the companies,
analysts say. 
    In contrast, the United States is dominated by three main
players - AT&T  T.N , Verizon  VZ.N  and T-Mobile  TMUS.N . That
can result in higher prices for customers and higher profits for
the companies. 
    Vodafone  VOD.L , Orange, Telefonica  TEF.MC  and Deutsche
Telekom  DTEGn.DE  are the biggest European telecom operators
and have a presence in several countries.
    Any deals that reduce competition in European countries from
four players to three would likely benefit their businesses in
the long term by enabling them to raise prices, analysts say.
    Vodafone, a vocal supporter of consolidation, is reportedly
in talks with Hutchison's Three network  0215.HK  in Britain. 
    Vodafone boss Nick Read on Monday declined to comment on any
potential deal, but reiterated there was room for consolidation
in Britain.  urn:newsml:reuters.com:*:nL8N2Z614P         

 (Reporting by Supantha Mukherjee in Stockholm, Foo Yun Chee in
Brussels, Andres Gonzalez in London and Elvira Pollina in Milan
Editing by Matt Scuffham and Mark Potter)
 ((supantha.mukherjee@thomsonreuters.com; +46 70 721 1004;
Reuters Messaging:
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