Brussels, 6 November 2013
Mergers: Commission opens in-depth investigation into Hutchison 3G UK's acquisition of Telefónica Ireland
The European Commission has opened an in-depth investigation to assess whether the planned acquisition of Telefónica Ireland by Hutchison 3G UK (H3G) is in line with the EU Merger Regulation. Both companies provide mobile telephony services in Ireland. The Commission has concerns that the transaction may reduce competition in the markets for retail mobile telephony and for wholesale access and call origination in Ireland. The opening of an in-depth inquiry does not prejudge the outcome of the investigation. The Commission now has 90 working days, until 24 March 2014, to take a decision.
The Commission’s initial market investigation indicated that the proposed acquisition may substantially lessen competition in the retail mobile telephony market in Ireland where Three Ireland, a subsidiary of H3G, and Telefónica Ireland currently compete with each other. The transaction would combine two of the four mobile networks in Ireland and create a player of similar size to the currently largest operator, Vodafone. The Commission has concerns that the transaction would remove an important competitive force and change the merged entity's incentive to exert significant competitive pressure on the remaining competitors. The Commission also has concerns that the transaction would reduce the merged entity's incentive to continue a network sharing agreement with Eircom, which could hamper Eircom's ability to compete effectively after the merger.
Moreover, the Commission has concerns that the transaction would lead to a significant reduction in the number of mobile network operators (MNOs) that are effectively willing to host mobile virtual network operators (MVNOs). Prospective and existing MVNOs would have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms.
Finally, the Commission's initial market investigation indicated that the reduction of the number of competitors following the merger may lead to a weakening of competitive pressure by increasing the likelihood that MNOs are able to coordinate their competitive behaviour and increase prices on a sustainable basis, as there may be a certain degree of market transparency at the retail level.
The Commission will now investigate the proposed acquisition in-depth to determine whether these initial concerns are confirmed or not. The Commission will in particular examine questions such as how close competitors the parties are, the merged entity's post-merger market incentives, the reaction of competitors and possible positive effects for consumers related to the roll-out of next generation mobile networks.
The transaction was notified to the Commission on 1 October 2013.
Three Ireland and Telefónica Ireland are both mobile network operators and provide mobile telecommunications services to end consumers in Ireland, as well as in related markets such as the wholesale of network access and call origination. Telefónica Ireland is a subsidiary of Telefónica. In Ireland, only two other MNOs are present in these markets, namely Vodafone and Eircom. In addition to the four MNOs, there are four MVNOs currently active in the market, the most important of which is Tesco Mobile Ireland, a joint venture between the retail supermarket chain Tesco and O2 Ireland.
Merger control rules and procedures
The Commission has the duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds (see Article 1 of the Merger Regulation) and to prevent concentrations that would significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.
The vast majority of mergers do not pose competition problems and are cleared after a routine review. From the moment a transaction is notified, the Commission generally has a total of 25 working days to decide whether to grant approval (Phase I) or to start an in-depth investigation (Phase II).
There are currently two other on-going phase II merger investigations. The first one concerns the proposed acquisition of the German cement company Cemex West by its rival Holcim of Switzerland (see IP/13/986). The deadline for a final decision in this case is 10 March 2014. In the second on-going phase II case, the Commission examines the proposed creation of a joint venture between the chemicals companies INEOS and Solvay (see IP/13/1040). The deadline for this investigation is 21 March 2014.