The European Commission has opened an in-depth investigation to assess whether the proposed acquisition of Jazztel p.l.c., a telecommunications company registered in the United Kingdom but mainly active in Spain, by rival Orange S.A. of France is in line with the EU Merger Regulation. In Spain, Orange operates mobile and fixed telecommunications networks while Jazztel operates a fixed telecommunications network and offers mobile telecommunications services on Orange's network. The proposed transaction would reduce the number of nationwide providers of fixed telecommunications services in Spain from four to three. While the merged entity would not be in a dominant position, the Commission has concerns that the proposed transaction may lead to a significant loss of competitive pressure for fixed Internet access services and fixed-mobile multiple play offers. The loss of Jazztel as an important competitive force could lead to price increases for these services for customers in Spain. The opening of an in-depth investigation does not prejudge the outcome of the investigation. The Commission now has 90 working days, until 24 April 2015, to take a decision.
The Commission's investigation revealed that the transaction may reduce competition in the retail market for fixed Internet access, where Orange and Jazztel currently compete. The Commission's investigation indicated that both companies are important competitive forces with a stronger influence on the competitive dynamics in these markets than suggested by their market shares. The Commission has concerns that the transaction would change the merged entity's incentive to exert significant competitive pressure on the remaining two nationwide competitors, namely incumbent operator Telefónica and Vodafone (who acquired cable operator ONO earlier in 2014). These concerns are reinforced when considering a possible market for fixed-mobile triple-play offers (comprising fixed voice, fixed Internet and mobile telecommunications services) which became the most popular telecommunications product in Spain in 2013 and is expected to continue growing significantly in the future. It is likely that only integrated providers with fixed and mobile networks would be able to compete in this possible market.
The Commission will now investigate the proposed transaction in-depth in order to determine whether its competition concerns are confirmed or not. It will also analyse the impact of the transaction on the Fibre-to-the-Home (FttH) deployment currently carried out by Orange and Jazztel and in particular whether it could reduce their FttH footprint as compared to a stand-alone scenario.
The transaction was notified to the Commission on 16 October 2014. The Spanish Competition Authority requested a referral of the case on 5 November 2014 under Article 9 of the EU Merger Regulation. This referral request is pending.
In order to address the competition concerns identified by the Commission, Orange submitted commitments on 13 November 2014. However, the Commission considered that these commitments were insufficient to clearly dispel its serious doubts as to the compatibility of the transaction with the EU Merger Regulation and therefore decided not to test them with market participants.
Companies and products
Orange is a provider of telecommunication services in more than 30 countries. Orange is present in the Spanish telecommunication market through its wholly-owned Spanish subsidiary Orange Espagne, S.A.U.
Jazztel, through its subsidiary Jazz Telecom, S.A.U., provides telecommunication services at both retail and wholesale level in Spain.
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 EEA or any substantial part of it.
The vast majority of notified 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).
In addition to the current transaction, there are three other on-going phase II merger investigations. The first is the planned acquisition of a controlling stake in De Vijver Media by Liberty Global, with a decision deadline on 5 March 2015 (see IP/14/1029). The second one relates to Zimmer's planned acquisition of Biomet, with a decision deadline on 18 March 2015 (see IP/14/1091). The third one is the proposed acquisition of the Greek gas transmission system operator DESFA by the State Oil Company of Azerbaijan Republic (SOCAR), with a decision deadline of 22 April 2015 (see IP/14/1442).