While the EC may not have fully opened the door to further in-market consolidation, it is perhaps now ajar
As notified, the deal was considered to restrict competition at the retail level
On 20 February 2024, the EC announced that it had approved the proposed 50-50 joint venture between Orange and MasMovil in Spain. The decision follows an in-depth (i.e. Phase II) investigation in which it had concerns that the transaction, as initially notified, would restrict competition in the supply of fixed and mobile broadband services, whether offered standalone or as part of a bundle. In particular, the EC found that the merger:
Creates the largest operator by customer numbers in Spain, with a significant increase in market share across all relevant retail markets;
Eliminates a close and important competitor to Orange, with MasMovil growing steadily over recent years;
May have led to significant price increases for consumers, well above 10%; and
Would not have generated sufficient efficiencies (e.g. cost saving or incremental 5G or fibre rollout) to offset its anti-competitive effects.
Remedies that strengthen existing player Digi
To address the EC’s concerns, Orange and MasMovil offered two main commitments:
Divest 60MHz of spectrum held by MasMovil to Digi across three bands: 1800MHz, 2.1GHz and 3.5GHz. This will enable Digi to build its own mobile network and to exert a competitive constraint on the joint venture; and
Enter an optional national roaming agreement, which Digi can decide to use or not as it starts to deploy its own infrastructure with the use of the divested spectrum. The EC considered this option critical given that, as is the case with MasMovil today, Digi's future mobile network (using the divested spectrum), would likely not cover the whole of Spain. As the national roaming agreement is optional, Digi will be free to remain with its current wholesale provider (Telefónica) or choose another mobile network operator (i.e. the joint venture or Vodafone).
In light of its experience as a mobile network operator in other European countries and its track record as an MVNO in Spain, the EC determined that Digi was an appropriate remedy taker. The EC also noted the existence of Digi's relatively large and expanding fibre network (and therefore competition in the broadband market), which has meant the parties have avoided having to relinquish any fixed assets to get the deal through. This represents a positive result from Orange’s perspective, which had to divest significant fibre assets to acquire Jazztel back in 2015.
A sign of pragmatism from the EC?
After conducting a market test of the proposed commitments, the EC concluded that they fully address its concerns and will preserve a competitive telecoms market in Spain, specifically in terms of price and quality for consumers. The EC has therefore given the merger the green light, a decision Christel Heydemann (CEO, Orange) stated will forge a “stronger and more sustainable player”, with a greater capacity to invest. The decision, however, comes almost two years from when both sides entered into exclusive negotiations – a long time in anyone's book. The transaction was widely seen as a test case for future in-market consolidation in Europe, with other operators reportedly considering merger options. While a forthcoming ‘Digital Networks Act’ promises support for operators to gain scale, a relatively less severe remedies package may confirm some suspicions that EC has become more open minded about in-market mobile consolidation. Whether this emboldens operators to seek to combine remains to be seen, with the EC not ready to abandon its long-held view about the likely harm stemming from four-to-three mobile mergers and the important role of challengers.
Limited read across for Vodafone/Three in the UK
With the UK’s CMA at an earlier stage with the proposed Vodafone/Three merger, there is an opportunity for the competition authority to consider the EC’s thinking and rationale in the Orange/MasMovil case. The CMA agreed with the EC’s previous prohibition of O2/Three and this latest decision will be on its radar. However, with different market players and conditions to analyse, it remains unclear what conclusion the CMA’s ongoing review will reach. The CMA’s assessment will likely focus on issues such as operators’ spectrum holdings (and therefore capacity), tangled networking sharing agreements and the potential effect on retail prices. Some of these are easier than others to address.
