The European Commission (EC) has approved Telefonica’s €8.6bn (US$11.75bn) takeover of German mobile operator E-Plus from KPN subject to conditions to boost the competitiveness of MVNOs and pave the way for a new mobile network operator to enter the…
The European Commission (EC) has approved Telefonica’s €8.6bn (US$11.75bn) takeover of German mobile operator E-Plus from KPN subject to conditions to boost the competitiveness of MVNOs and pave the way for a new mobile network operator to enter the market.
The approval is subject to the condition that Telefonica fully implements its submitted commitments package, which includes three key remedies.
As widely speculated, Germany’s well-established MVNO market was a key factor in the commission’s decision to approve the deal, which combines the nation’s third and fourth largest MNOs.
Up to 30% network capacity for MVNOs
Firstly, Telefonica has committed to sell up to 30% of Telefonica Deutschland (O2) and E-Plus’ combined network capacity to up to three local MVNOs at fixed rates before the acquisition is completed. The capacity is measured in terms of bandwidth and the MVNOs will get a dedicated ‘pipe’ from the merged entity’s network for both voice and data traffic.
“This measure ensures that up to three MVNOs will enter the German market with the necessary degree of certainty,” the commission said. “They will be able to ensure, together with the three remaining MNOs and the other MVNO players, a sufficient degree of competition in the German retail mobile telephony market so that the elimination of E-Plus would not give rise to competition concerns.”
Last week, O2 signed a network access agreement with MVNO Drillisch which will grant the smaller company access to 20% of the merging companies’ networks over a five-year period. Drillisch will also have the right to acquire up to 10% extra network capacity.
European Competition Commissioner Joaquin Almunia said at a press briefing in Brussels today that the relevant MVNOs will be able to access the up to 30% network capacity for up to 10 years.
“This capacity roughly corresponds to a market share of 10% in terms of subscribers.”
Almunia added that the MVNOs will have access to all existing and future technologies and speed classes for mobile data offered by Telefonica, while also remaining able to design their own products.
“As they will also have to commit to purchase a significant amount of capacity in advance, the remedy will also create a strong incentive for these MVNOs to compete aggressively on the market, in order to acquire subscribers to fill the fixed amount of capacity that has been purchased on the merged entity’s network.”
O2 to divest spectrum and other assets
Telefonica has also committed to offer to divest radio wave spectrum and certain other assets and services to either a new MNO entrant in the context of the upcoming frequency auction or to the MVNOs which take up O2 and E-Plus’ shared network capacity.
“These assets, in conjunction with the … frequency auction to be organised by the German telecoms regulator, could facilitate the entry or enable the development of a new MNO into the German market in the future,” the commission said.
O2 said in a statement it will make a package of 2.1 GHz and 2.6 GHz frequencies, mobile sites, national roaming and a passive sharing site available to a party interested in entering the German market.
Almunia explained that Telefonica’s offer is available to all interested parties until the end of 2014, after which it will remain in place for the relevant MVNOs for up to five years from the closing of the acquisition.
“This will keep the door open to the entry of a new MNO in the German market in the future or it will allow the MVNO which has taken up the mobile bitstream access to offer to develop into an MNO in the future.”
Wholesale agreements to be extended
Thirdly, Telefonica has committed to extending wholesale agreements with the merging companies’ partners, including MVNOs and service providers, to 2025 and to offer wholesale 4G services to all interested parties going forward. Telefonica must also improve wholesale partners’ ability to switch customers from one MNO to another.
The commission said this third measure provides wholesale partners with planning security for 2G and 3G services while the opportunity to gain access to 4G services improves their negotiating position with incumbent Deutsche Telekom and Vodafone.
“These commitments address the commission’s competition concerns, taking due account of the different kinds of competitors and business models that are viable on the German market and of the market reality, for instance the presence of a significant number of MVNOs and service providers in Germany.”
E-Plus head to take helm of combined company
Following closing of the deal, E-Plus CEO Thorsten Dirks will head up O2.
The O2 supervisory board nominated Dirks, also on the management board of Dutch telco KPN, at a meeting today following the EC decision.
Dirks will join CFO Rachel Empey and CSO Markus Haas on the management team. He will then step down from the KPN board.
Dirks, who started at E-Plus in 1996 and became CEO in 2007, said he is looking forward “to creating the powerful new force in the German telecoms market”, adding that they intend to “seize the opportunities offered by a rapidly changing market”.
Dirks has also held various management roles at E-Plus related to networks and IT as well as commercial management. Previously, he worked for Orbitel Mobile Communication and Vebacom.
The combined company’s headquarter remain in Munich, O2 said, noting that a decision about the future development of individual locations will be made after closing.
O2 expects the acquisition to close in the third quarter of this year. The operator added that it still expects synergies of more than €5bn from the merger.
Clearance of the deal is expected to trigger similar deals throughout the EU.
Telefonica first notified the EC of the planned acquisition on 31 October 2013 and the commission opened an in-depth phase II investigation on 20 December, which was extended several times.
