Liberty Global’s Base takeover subject to in-depth review

The decision follows Commissioner Margrethe Vestager publicly expressing her preference for structural remedies.

The European Commission has launched an in-depth review into Liberty Global’s (NASDAQ:LBTYK) agreement to buy Belgian mobile operator Base from KPN (AMS:KPN).

Liberty Global filed the transaction with the antitrust authority in August and submitted remedies in mid-September, in order to assuage any fears over the fixed-mobile tie-up between its local cableco Telenet and Base.

On the basis of its initial investigation, the regulator today laid out three main concerns about the impact of the deal on the Belgian telecoms market.

Firstly, the combination would lead to the loss of an important retail player, Telenet’s existing MVNO.

This largest virtual operator, which piggybacks on Mobistar’s network, is the de facto fourth player and therefore “an important competitive force”. Proximus is the country’s largest carrier, followed by Mobistar and Base.

Secondly, a merged Base might have less incentive to offer access to other virtual operators, thus leading to less competition in mobile.

Thirdly, the EC wants to review the potential for the transaction to “increase Telenet’s ability to sell its fixed-line services to BASE’s mobile customers (notably by bundling them together) and whether this would increase the merged entity’s market power and allow it to exclude competitors.”

Consumer protection

Competition Commissioner Margrethe Vestager said: “We want to make sure that consumers in Belgium do not suffer higher prices and less choice as a result of this proposed takeover.”

The EC has 90 working days to conduct its investigation, which would therefore end on 18 February 2016.

Commenting on the announcement, Liberty Global said: “We note the European Commission’s decision to start an in-depth inquiry. We will continue to work with the European Commission and the Belgian Competition Authority and remain confident that the proposed transaction will be cleared.”

A KPN spokesperson said: “We’ve noticed the European Commission’s decision. We remain confident that the proposed transaction will be cleared by the EC.”

The €1.33bn (US$1.5bn) cash deal, agreed in mid-April, would mark the John Malone-backed group’s first European mobile network acquisition.

As part of the deal, Telenet agreed to pay a €100m (US$113m) break fee in the event that the EC does not approve the deal.

The EC’s stance towards telecoms mergers appears to have hardened since Vestager took over the competition unit. In September, TeliaSonera and Telenor abandoned a plan to merge their Danish mobile operations following opposition from the EC. The previous administration, led by Joaquín Almunia, had allowed a number of four-to-three mobile transactions.

Structural remedies

Vestager commented extensively on the Danish decision in a speech at New York’s Fordham University on 2 October. She said there was no magic number [of operators needed for a market to remain competitive], and that she would always look at potential tie-ups on a case-by-case basis.

Vestager also reiterated her scepticism regarding some operators’ claims that consolidation leads to greater investment.

She instead asserted that greater competition in fact drove more investment, noting that following Google’s fibre deployments in a number of US cities, existing operators improved their own networks.

Perhaps most significantly, she laid out her preference for structural remedies rather than the MVNO commitments favoured by Almunia.

“There are good reasons to prefer structural remedies in horizontal mergers, especially when they are immediately effective and solve the competition concerns once and for all,” Vestager said in her speech.

Other remedies may be appropriate in some instances, she said, warning however that these were riskier to implement and difficult to monitor.

“They are also in place only for a defined period of time – however long. So this can make them less effective in guaranteeing the ability of the beneficiary company to compete in the long run.”

Vestager reminded the audience of her first in-depth telecoms merger review: another fixed-mobile transaction in which Orange’s Spanish mobile unit agreed to acquire fixed-line compatriot Jazztel.

“We required a structural remedy that was fully proportionate to the competition concerns identified,” she noted.

“We approved the merger in May this year, subject to a number of commitments, including the divestiture of an independent fibre-to-the-home network similar in size to Orange’s original network in Spain.”

Liberty Global will have paid particularly close attention to her comments.