Collapse of TeliaSonera/Telenor Tie-up Could Signal New EC Antitrust Approach

Also Friday, the EC launched an inquiry on the need for Internet speed and quality after 2020, and a separate consultation on the evaluation and review of regulation of e-communications networks and services.

TeliaSonera/Telenor was one of several pending telecom deals in Europe (see 1508030002) that critics have said would raise prices and stifle innovation while defenders said the opposite. When it opened a competition probe in April, the EC said it was concerned that TeliaSonera/Telenor, among other things, could reduce the merged entity's and its rivals' incentives to compete, leading to higher prices, loss of innovative offers and lower quality on the Danish retail mobile telecom market. The companies said they jettisoned their plan because they couldn't agree with the EC on acceptable conditions for creating a robust mobile operator.

Vestager confirmed that the companies hadn't been able to fully address EC concerns. "EU merger control has to make sure that company tie-ups do not lead to reduced innovation, higher prices or reduced choice for consumers and do not restrict competition in the internal market," she said Friday. Every case must be decided on its own merits, and in this case, a fourth mobile network operator was required, she said.

The European telecom world "has been characterized by a merger-mania" as many telcos seek to consolidate in national markets to save money and increase margins, telecom consultant Innocenzo Genna wrote on his blog. Vestager's predecessor, Joaquín Almunia, cleared M&A by mandating the use of MVNOs, a remedy that has since proved ineffective, said Genna. Vestager's stricter approach is aimed at making sure mobile consolidation doesn't harm competition, but it could, in practice, definitively stop mobile consolidation within European domestic borders because it's clear that planned deals in Italy and the U.K. have no other goals than to increase margin and profit in their national markets, said Genna. The chances for Hutchison 3G to combine with Wind in Italy and with Telefónica's O2 in the U.K. are "today definitely weaker," said Genna, who represents smaller players.

Vestager's stance could annoy other commissioners and stakeholders seeking to create bigger telecom players and compete at a global level, Genna wrote. But Vestager is right to believe companies should consolidate at the cross-border level rather than merging national assets, because cross-border consolidation is the only way to create a digital single market, he said.

Vestager asked for a fourth Danish mobile network operator and didn't get it, so she nixed the deal, said Antonios Drossos, managing partner of Finnish telecom consultancy Rewheel, in an interview. Even though the commissioner said every case is judged on its own merits, the reality is that she has now set a bar for future transactions, he said. The underlying issue is whether Almunia's MVNO conditions are effective in protecting competition, said Drossos. The EC's competition directorate didn't think so, and Vestager agrees, he said. MVNOs can't compete because they lack their own spaces and infrastructure, which is why mobile network operators are necessary, he said.

Drossos disagreed that the Danish case could stymie Hutchison/O2. Hutchison might agree to a new network operator rival, and there will be players in Britain interested in entering the market, he said. Because Vestager made it clear that each case must be treated on its facts, it "does not follow that other deals under scrutiny will share the same fate, particularly if being reviewed by local regulators rather than the EU although this will be an unhelpful precedent!," emailed Hogan Lovells (London) M&A attorney Don McGown. It does "signal a warning to telecom operators" that deals that reduce the number of players in a local market mustn't curb competition or lead to higher consumer prices, he said.

The EC e-communications regulatory framework questionnaire seeks input on how to assess current rules against evaluation criteria according to EU regulation guidelines. Questions include whether the objectives of a regulation have been met, EU action is still necessary, and costs are reasonable, it said. The consultation also seeks feedback on what issues should be reviewed in order to reform telecom rules in light of market and technological developments. The Internet inquiry will look at the needs for quality and speed beyond 2020. Comments in both are due Dec. 7.

The EC is also preparing a questionnaire on online platforms, a copy of which was posted by Politico Friday. It seeks feedback on the regulatory environment for Internet platforms and intermediaries, data and cloud computing and the sharing economy.

The upcoming policy debate must be shaped by consumers' new priorities and the convergence of digital services, said the European Telecommunications Network Operators' Association. It released a digital consumer survey it said showed the need for reform of the "currently fragmented regulatory framework." The survey said consumers overwhelmingly want Internet-based communication providers to be legally required to tell them when their personal data is breached; and that they want to be able transfer apps to another phone if they switch providers. The survey of 9,011 people in nine countries also showed that public payphones and printed phone books are a thing of the past, ETNO said.