On 28 May 2014, the European Commission conditionally approved the acquisition of Telefonica (which operates under the “O2” brand) by Hutchinson 3G Ireland (which operates under the “3” brand). The merger is of note not only because the Commission has allowed the reduction of major competitors on the Irish market from four to three but also due to the way the effect of the merger was assessed.
The Commission (and the national Irish telecoms regulator who allegedly does not support the proposed commitments) had several concerns regarding the merger. These were:
- O2 Ireland is currently the second largest major network provider in Ireland whilst Hutchinson is the fourth largest. Their merger is creating the joint largest provider with 40% alongside Vodafone, whilst Eircom has around a 20% market share.
- That the removal of one of the major operators would further concentrate an already concentrated market with high barriers to entry.
Given these concerns, the Commission referred the merger for a thorough Phase II investigation on 6 November 2013. This investigation has now concluded and has conditionally approved the merger on the grounds that certain commitments are fulfilled by Hutchinson. The two main commitments are:
1. Hutchinson must sell 30% of it’s capacity in voice and data capacity to allow the entry of two new mobile virtual network operators. To show it’s commitment to a competitive market, Hutchinson must approve a five year deal with at least one of these new competitors before the O2 merger may complete. Furthermore, the Commission must approve the new entrant to ensure that they will carry out the commitments and provide genuine competition to the merged entity and other operators as a new market entrant. At the time of writing, these new entrants are rumoured to be Liberty Global and the Carphone Warehouse Group. Interestingly for those companies that operate in the telecoms industry, the Commission was keen to allocate these new entrants a fixed capacity from the merged entity rather than a pay as you use approach depending how much voice and data traffic their subscribers had used. Presumably this is to give the entrants certainty and establish a sizeable competitor from the outset.
2. Hutchinson has committed to continue network sharing with Eircom on improved terms. This was especially important given that network sharing agreement sustains one of both O2’s and Hutchinson’s major rivals.
This merger is of note for two reasons. Not only has the Commission allowed a merger that to many consumers will initially appear to be a concentration of an already concentrated market but also in the way the Commission has assessed the market for telecoms. The Commission acknowledges that any assessment of the merger and its effect can only be done on a national basis, even though the merger is of a size to trigger EU merger control thresholds. By doing so the Commission acknowledges the reality that there is no single market for telecoms. The existence of a national regulator for every Member State allocating capacity and creating differing regulation will mean that in effect the telecoms market is still 28 national markets.
The other question is what the effect of these approved commitments will be on other Member State markets. For instance, O2 and 3 both operate on the UK market. Given their success in Ireland, will the two now look to merge and argue in front of the Commission that it must accept similar commitments to the ones it has agreed to in Ireland? Irish consumers may also be sceptical as to whether a merger of rivals approved on the basis of the creation of new smaller rivals will get them a fair deal. If anything, many facing mobile phone and other telecoms costs each month would argue that operators would be better broken up with forced divestments to create more operators rather then permitting two of four rivals to merge. The success of this merger and the effect of the commitments on the Irish market will no doubt be studied closely by regulators and operators alike including the proposed merger of Telefonica Germany and Royal KPN NV’s E-Plus.