The impacts on competition, potential for higher prices and the EC’s preference for cross-border mergers all present a significant regulatory hurdle
EC confirms in-depth merger review: The EC has launched an in-depth investigation to assess the proposed creation of a 50-50 joint venture by Orange and MasMovil in Spain. They are currently the second and fourth largest operators in the market, respectively, and are active in fixed broadband and mobile services at both the retail and wholesale levels. The transaction was announced by the parties in July 2022 and formally notified to the EC on 13 February 2023, at which point the regulator began a Phase I review. The preliminary investigation indicates that Orange and MasMovil are close competitors in the Spanish markets for the retail supply of: (i) mobile telecoms services; (ii) fixed broadband access services; and (iii) multiple-play bundles, including fixed-mobile convergent services.
Preliminary competition concerns relate to price, quality and wholesale access: The EC is concerned that the JV may reduce competition in these markets, with Margrethe Vestager (Executive Vice President) highlighting MasMovil’s role as a ‘successful challenger’ operator in recent years. In particular, the EC’s initial investigation found that:
The transaction would reduce the number of network operators in Spain, thereby eliminating an innovative and significant rival. This could lead to higher prices and a lower quality of telecoms services for consumers; and
As a result of the merger, Orange and MasMovil would have the ability and incentive to restrict the access of virtual operators to wholesale fixed and mobile network services. This could reduce the ability of such operators to compete, and in turn lead to higher prices and lower quality of services for consumers in Spain.
A test case for in-market consolidation: The CNMC had asked (on 2 March 2023) to take control of the merger review process; however, while this referral request is pending, it is all but certain that the EC will assess the deal itself, taking a decision by 21 August 2023. It was again somewhat inevitable that Orange/MasMovil would lead to a Phase II investigation, with the parties supposedly less than inclined to offer the concessions that might have enabled the EC to close the review in its opening stage. The transaction is also widely seen as a test case for future in-market consolidation in Europe, with other major telcos exploring potential combinations. While the EC states that no decision has yet been made, the prospect of higher retail prices and Vestager’s reported preference for cross-border mergers could make the JV a tough sell without significant remedies.
