Despite being inline with the preliminary view, there is still a chance the AdC’s decision could be appealed directly to the Minister of Economy, although this mechanism has only been invoked (successfully) once before
The deal would have strengthened Vodafone’s position in the fixed broadband market
On 4 July 2024, the Autoridade da Concorrência (AdC) – the Portuguese competition authority – announced its decision to prohibit the proposed acquisition by Vodafone of Cabonitel, the parent company of cableco Nowo. The transaction would have bolstered Vodafone’s position in the market through the absorption of Portugal’s fourth largest converged operator, reducing the number of fixed providers from four to three. Following notification of the deal in November 2022, the AdC launched an initial review, quickly seeking the views of ANACOM (the country’s communications regulator) and the ERC (the media regulator). In its opinion on the transaction, ANACOM considered the acquisition could increase prices and undermine pro-competition measures linked to the 2021 multi-band spectrum auction. The AdC’s preliminary review, which was completed in April 2023, confirmed the merger could have negative impacts on competition and consumers. This final decision shows that the AdC’s position has not altered as a result of the investigation process, in which it formally requested information from Vodafone 14 times and had over 30 interactions with third parties. It is also the first predominantly fixed telecoms merger to be blocked in recent years, with the EC and national competition authorities often taking a dim view of in-market mobile deals but appearing more open to fixed/mobile transactions, such as the acquisition of Telia by Norlys in Denmark.
A highly concentrated market, with similar offers and tariffs among the largest three operators
The AdC’s analysis of the telecoms sector in Portugal pre-merger identified high and heterogeneous levels of concentration across the mainland, with loyalty periods and bundled offers reinforcing barriers to switching between operators, while reducing competition and the ability of new providers to enter (or exit) the market. Significant similarities were found in the propositions of the three main operators – MEO, NOS and Vodafone – both in terms of the type of offers and their tariffs. The AdC also identified several mechanisms and procedures through which these operators maintain this kind of alignment. Following an in-depth investigation, the AdC has now concluded that the merger would likely create significant impediments to effective competition in various telecoms markets, thereby harming consumers. Specifically, it has determined that the merger would have detrimental effects on consumers due to an increase in market power for Vodafone and its main competitors (i.e. unilateral effects), enhanced conditions for coordination across industry (i.e. coordinated effects) and reinforced barriers to market entry.
The AdC has concluded that the acquisition would have both unilateral and coordinated effects
Regarding unilateral effects (those that result from the elimination of important competitive constraints between the merging parties), the AdC found that Nowo exerts considerable competitive pressure on its rivals, but that the merger would lead to significant price increases – in particular, 55% for Nowo’s standalone mobile services and 21% for its triple-play bundles. It was estimated that Vodafone’s prices would see low single-digit growth, while those of other operators would rise by a marginal amount. According to the AdC, the projected increase in Vodafone’s market power would reduce consumer welfare and social welfare by €54m (£45.6m) and €20m (£16.9m) per year, respectively. In terms of coordinated effects (those that arise when a merger creates conditions that make tacit collusion more likely or effective), the AdC concluded that the merger would likely increase the probability, sustainability and degree of coordinated behaviour between MEO, NOS and Vodafone given the similarity in their offerings and the elimination of the only operator (Nowo) with differentiated and lower-priced propositions. It was also considered that the merger would reinforce barriers to entry, particularly due to Vodafone’s enlarged spectrum holding by acquiring the 1.8GHz, 2.6GHz and 3.6GHz lots Nowo won in a 2021 auction.
Commitments proposed by Vodafone were deemed insufficient to mitigate the impacts on competition
During the merger review, Vodafone submitted multiple commitments packages to address the AdC’s concerns. The first package was proposed on 12 December 2023 but was rejected as insufficient little over a month later. The second package was withdrawn, while the third was also rejected. The fourth submission followed the AdC’s draft decision (from 22 March 2024) to block the deal, causing it to reopen the investigation and conduct supplementary enquiries. The commitments package involved:
Selling spectrum licences acquired by Nowo to Digi; and
Providing Digi with wholesale access to Vodafone's fibre network.
In the AdC’s view, transferring spectrum to Digi would not help meet the objectives of the multi-band auction that reserved certain frequencies for new entrants. It is also considered that the proposal presented risks of circumvention and distortion, and relied incorrectly on a “Nowo-Digi substitution” to offset the impacts of the merger. Consequently, the AdC again determined that the commitments submitted by Vodafone did not effectively address the expected harm to competition. It now appears that the only means of getting the deal through – should Vodafone remain keen to pursue it – would involve the operator either challenging the AdC’s decision in court or appealing directly to the Minister of Economy. The second option has only been taken once in the past, although the appeal was successful.
