Brussels, 28 May 2014
Mergers: Commission clears acquisition of Telefónica Ireland by Hutchison 3G, subject to conditions
The European Commission has approved under the EU Merger Regulation the proposed acquisition of Telefónica Ireland's mobile telecommunications business (O2 Ireland) by Hutchison 3G (H3G). The approval is conditional upon a commitments package submitted by H3G. The Commission had concerns that the merger, as initially notified, would have removed an important competitive force from the Irish mobile telecommunications market to the detriment of consumers. To address these concerns, H3G submitted commitments ensuring that new competitors will enter the mobile telecommunications market in Ireland. These commitments remove the Commission's concerns. See also MEMO/14/387.
Commission Vice President in charge of competition policy Joaquín Almunia commented: "In a context of increased data consumption on their mobile devices, European consumers should continue to benefit from improved services at attractive prices. To achieve this, it is essential that healthy competition is preserved in mobile telecoms markets. The commitments offered by Hutchison 3G ensure that Irish consumers will continue to enjoy these benefits".
Ireland is a relatively small telecoms market, with around 4.6 million inhabitants and 5.5 million mobile telecoms subscriptions. A relatively high proportion of inhabitants live in rural areas, raising challenges for the roll out of mobile telecoms networks. All mobile network operators in Ireland already share networks to reduce the cost of their roll-out.
The merger would bring together the second and the fourth largest mobile network operators in Ireland. Since its entry in 2005, H3G – through of its subsidiary Three – has been an important competitive force on the Irish market, for instance by offering attractive data offers to consumers. The merger would remove this force and create a larger company facing only two competitors: Vodafone and Eircom. In addition, the market is characterised by high entry barriers for new competitors and no countervailing buyer power from end consumers. Therefore, the Commission was concerned that the merger, in its original form, would have led to higher prices and less competition.
To remove those concerns, H3G submitted commitments based on two components:
1) First, H3G offered a package aimed at ensuring the short-term entry of two mobile virtual network operators (MVNOs), with an option for one of them to become a full mobile network operator by acquiring spectrum at a later stage.
MVNOs offer mobile telecoms services to consumers through access to the network of mobile network operators (MNOs). H3G commits to sell up to 30% of the merged company's network capacity to two MVNOs in Ireland at fixed payments. The capacity is measured in terms of bandwidth and the MVNO entrants will obtain a dedicated "pipe" from the merged entity's network for voice and data traffic. This model is more effective than the typical pay-as-you-go model that MVNOs currently use in Europe and under which they pay for network access according to the actual usage of their subscribers. The Commission's investigation in this case also showed that the model is viable for the Irish telecoms market. Indeed, with a pre-fixed capacity at their disposal, the new MVNOs will have increased incentives to fill that capacity by offering attractive prices and innovative services. Their incentives will be very similar to that of Three before the merger.
With these commitments, the two MVNOs that enter in Ireland in the short term will be able to replace the competitive force that Three exercised previously. The decision leaves open the possibility for them to become a full mobile network operator at a later stage. To facilitate this, H3G committed to divest five blocks of spectrum in the 900 MHz, 1800 MHz and 2100 MHz bands. The spectrum will be available for ten years, starting from 1 January 2016.
2) Second, H3G offered a package aimed at ensuring that Eircom stays a competitive mobile network operator in Ireland.
The Commission had concerns that after the merger, Three could frustrate or terminate the network sharing agreement that Eircom, the third and smallest network competitor after the merger, currently has with O2 Ireland. This would have limited Eircom's options to achieve a nationwide coverage in Ireland, including for its roll-out of 4G/LTE services. H3G committed to offer Eircom to continue the network sharing agreement on improved terms. Given the importance of network sharing in Ireland, this will secure Eircom's options to achieve its roll-out plans and ensures that Eircom remains an effective and viable competitor.
These commitments address the Commission's competition concerns, taking due account of the different kinds of competitors and business models that are viable on the Irish market and of the market reality, for instance the importance of network sharing.
The Commission therefore concluded that the transaction, as modified by the commitments, would not raise competition concerns. This decision is conditional upon the full implementation of the commitments.
H3G notified its proposed acquisition of Telefónica Ireland to the Commission on 1 October 2013. The Commission opened an in-depth investigation on 6 November 2013 (see IP/13/1048). A statement of objections, setting out the Commission's competition concerns, was adopted on 30 January 2014. Throughout the proceedings the Commission cooperated closely with the Irish Competition Authority and Irish telecoms regulator, ComReg.
Hutchison 3G Ireland is a wholly-owned indirect subsidiary of Hutchison, the holding company of a conglomerate headquartered in Hong Kong. Three is a subsidiary of and the most recent entrant in the Irish mobile telecommunications market. It sells its services under the brand name "3". Apart from Three, Hutchison also owns MNOs in five other Member States: Austria, Denmark, Italy, Sweden and the UK.
Telefónica Ireland is a wholly-owned indirect subsidiary of Telefónica S.A., the parent company of the Telefónica group. Telefónica Ireland is Ireland's second largest MNO and sells its services under the brand name "O2" and the sub-brand "48". It also owns 50% of Tesco Mobile Ireland ("Tesco Mobile"), the other 50% being owned by Tesco Ireland.
Merger 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.
There are currently five other phase II 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 8 July 2014.The second one concerns the proposed acquisition of E-Plus by Telefónica Deutschland (see IP/13/1304 and IP/14/95) with a deadline of 10 July 2014. The third phase II investigation is the planned acquisition of certain assets of the Swiss building materials group Holcim by its Mexican rival Cemex (see IP/14/472), with a deadline of 5 September 2014. The fourth phase II investigation concerns the planned acquisition by Huntsman of a number of equity interests held by Rockwood, both of the US (see IP/14/220). The deadline for a final decision in this case is 18 September 2014. The final Phase II investigation concerns the planned acquisition of the Dutch cable operator Ziggo by Liberty Global. The deadline in that case is 17 October 2014 (see IP/14/540).