EU Concerns Over German Telecom Merger Underline Difficult Balancing Act

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By Joe Kirwin  

June 23 — The European Commission's balancing act in ensuring both healthy competition in the European Union's telecommunications market and open avenues for major companies to finance new high-speed infrastructure and compete evenly with U.S. and Asian-based competitors grew more delicate after EU Member State competition authorities criticized merger conditions for the third-largest and fourth-largest German operators.

A commission official, who spoke to Bloomberg BNA on the condition of anonymity, confirmed on June 23 that it unexpectedly was criticized for being too lenient in the terms it is proposing to settle a pending $12 billion merger between the German subsidiary of Spanish incumbent operator Telefonica SA and the subsidiary of Dutch incumbent KPN NW known as E-Plus.

“The objections were not expected,” according to the commission, which would not comment on the substance of the settlement terms tentatively reached with Telefonica to approve the merger. “We believe the terms will ensure healthy competition and will not have a negative impact for consumers.”

So intense has the pressure been on Competition Commissioner Joaquín Almunia that he recently went out of his way to specifically rebuke German Chancellor Angela Merkel and EC President Jean-Claude Juncker for “misguided” arguments that do not properly prioritize changes needed to establish a true EU single telecoms market comprising 500 million consumers.

“What political leaders are asking for requires solutions that are first and foremost in their hands,” Almunia said. “These governments do not want to allocate spectrum at EU level because they are not willing to forgo the billions raised in auctions, which go directly to their respective national coffers. And they resist to move upwards the responsibilities of national regulators. Unfortunately, they prefer to keep spectrum allocation and regulatory decisions in their national hands.”

Package of Changes Pending

The commission proposed a legislation package in September 2013 that was designed to help overcome a number of the obstacles inhibiting an EU single telecom market, including a reform of spectrum management as well as issues relating to roaming charges and Internet neutrality.

While the legislation was approved in April in the European Parliament, it is still pending before the Council of Ministers.

The current pending merger decision on Telefonica-KPN’s E-Plus follows a recent merger approval of the third-largest and fourth-largest mobile operators in Ireland as well as in Austria. In May, the commission approved Hutchison 3G’s proposed $1 billion takeover of Telefonica’s O2 Ireland, after an agreement to sell network capacity that will allow for quick market entry in Ireland of two mobile virtual network operators. Hutchinson Whampoa Ltd is the parent company of Hutchinson 3G and Telefonica SA is the parent company of O2.

In the case of the Irish merger approval, the Irish telecoms regulator criticized the terms of the consolidation and predicted that it would have a negative impact on consumers.

In Austria, where the merger of the third-largest and fourth-largest operators was approved with conditions in 2013, consumer groups complain the market consolidation has led to higher prices.

Based on EU law, the commission can override the objections of EU Member State national competition authorities. However, it is a rare event when the commission lacks support from Member State competition authorities.

To contact the reporter on this story: Joe Kirwin in Brussels at

To contact the editor responsible for this story: Paul Barbagallo at

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