Mergers: Commission opens in-depth investigation into Telefónica Deutschland's acquisition of E-Plus
The European Commission has opened an in-depth investigation to assess whether the planned acquisition of E-Plus of Germany by Telefónica Deutschland (Telefónica) is in line with the EU Merger Regulation. Both companies provide mobile telephony services in Germany via their own respective mobile networks. The Commission has concerns that the transaction may reduce competition in the markets for retail mobile telephony and for wholesale access and call origination in Germany. The opening of an in-depth inquiry does not prejudge the outcome of the investigation. The Commission now has 90 working days, until 14 May 2014, to take a decision.
The Commission’s initial market investigation indicated that the transaction may reduce competition in the retail mobile telephony market as well as in the market for wholesale access and call origination on mobile networks in Germany, where Telefónica and E-Plus currently compete with each other. The transaction would combine two of the four mobile networks in Germany and create a player of similar size to the currently two largest operators, Deutsche Telekom and Vodafone. The Commission has concerns that the transaction would remove an important competitive force and change the merged entity's incentive to exert significant competitive pressure on the remaining competitors.
Moreover, the Commission has concerns that after the transaction the remaining MNOs might have fewer incentives to grant access to their network to mobile virtual network operators (MVNOs) and service providers. Prospective and existing MVNOs and service providers would have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms.
Finally, at this stage it cannot be excluded that the reduction in the number of competitors following the merger would increase the likelihood that MNOs will coordinate their competitive behaviour and increase prices, as there may be a certain degree of market transparency at the retail level.
The Commission will now investigate the transaction in-depth to determine whether these initial concerns are confirmed or not. The Commission will in particular examine questions, such as how close competitors the parties are, the merged entity's post-merger incentives to compete, the likely reaction of competitors and possible positive effects for consumers related, among others, to the roll-out of 4G mobile networks.
The transaction was notified to the Commission on 31 October 2013.
Background
Telefónica and E-Plus are both mobile network operators and provide mobile telecommunications services to end consumers in Germany, as well as in related markets such as the wholesale of network access and call origination. Telefónica is a subsidiary of Telefónica S.A., head-quartered in Spain. E-Plus is a subsidiary of the Dutch operator Koninklijke KPN N.V. (KPN). In Germany, only two other MNOs are present in these markets, namely Deutsche Telekom and Vodafone. In addition to the four MNOs, there are MVNOs and service providers currently active in the market, including Freenet, 1&1 and Drillisch. MNOs furthermore cooperate with branded resellers, who distribute mobile communication services contracts on their behalf.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.
The vast majority of mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
There are currently three other on-going phase II merger investigations. The first one concerns the proposed acquisition of the German cement company Cemex West by its rival Holcim of Switzerland (see IP/13/986). The deadline for a final decision in this case is 31 March 2014. In the second on-going phase II case, the Commission examines the proposed creation of a joint venture between the chemicals companies INEOS and Solvay (see IP/13/1040). The deadline for this investigation is 4 April 2014. The third on-going investigation, the planned acquisition of Telefónica Ireland by Hutchison 3G UK (H3G), concerns, similarly to the present case, the markets for retail mobile telephony and for wholesale access and call origination in Ireland (see IP/13/1048). The deadline for a final decision in this case is 24 April 2014.