Brussels, 2 July 2014
Mergers: Commission clears acquisition of E-Plus by Telefónica Deutschland, subject to conditions
Following an in-depth investigation, the European Commission has approved under the EU Merger Regulation the proposed acquisition of Dutch Telecom operator KPN's German mobile telecommunications business E-Plus by Telefónica Deutschland (Telefónica). The approval is conditional upon the full implementation of a commitments package submitted by Telefónica. The Commission had concerns that the merger, as initially notified, would have removed two close competitors and important competitive forces from the German mobile telecommunications market and that it would have further weakened the position of Mobile Virtual Network Operators (MVNOs) and Service Providers to the detriment of consumers. To address these concerns, Telefónica submitted commitments ensuring that new competitors will enter the mobile telecommunications market in Germany and that the position of existing competitors is strengthened. These commitments remove the Commission's concerns. See also MEMO/14/460.
Commission Vice President in charge of competition policy Joaquín Almunia commented: "The remedies to which Telefónica commits ensure that the acquisition of E-Plus will not harm competition in the German telecoms markets. Consumers will continue to enjoy the benefits of a competitive market."
The merger would bring together the third and the fourth largest mobile network operators (MNOs) in Germany and would lead to a market structure with three MNOs of a similar size. In addition to the loss of competition between the merging parties, which are currently close competitors at the retail level, the merger would remove E-Plus and Telefónica as important competitive forces from the market and change their incentives to compete aggressively. Likewise, the incentives of the other MNOs - Deutsche Telekom and Vodafone - to compete aggressively would decrease. Finally, the ability and incentives of other players, that is to say MVNOs, Service Providers and Branded Resellers, to exercise competitive pressure on MNOs at the retail level are already limited today and would further decrease following the acquisition. In addition, the market is characterised by high entry barriers for new competitors and no countervailing buyer power from end consumers. For all these reasons, the Commission was concerned that the merger, in its original form, would have led to higher prices and reduced competition to the detriment of German consumers.
To remove those concerns, Telefónica submitted commitments based on three components:
1) First, Telefónica offered a package of commitments aimed at ensuring the short-term entry or expansion of one or several MVNOs which will compete with the merged entity. MVNOs offer mobile telecoms services to consumers through access to the network of MNOs. Telefónica commits to sell, before the acquisition is completed, up to 30% of the merged company's network capacity to one or several (up to three) MVNO(s) in Germany 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 and Service Providers currently use in Germany - and more generally in Europe - and under which they pay for network access on a per usage basis. The Commission's investigation in this case also showed that the model is viable for the German telecoms market. Indeed, with a fixed capacity that they committed to pay upfront at their disposal, the MVNOs will have increased incentives to fill the capacity they have committed to purchase by offering attractive prices and innovative services.
This remedy ensures that up to three MVNOs will enter or expand in the German market with the necessary degree of certainty. They will be able to ensure, together with the three remaining MNOs and the other (non-MNO) players, a sufficient degree of competition on the German retail mobile telephony market so that the elimination of E-Plus would not give rise to competition concerns.
2) Second, Telefónica commits to offer to divest radio wave spectrum and certain assets either to a new MNO entrant or subsequently to the MVNO(s) who will have taken up the network capacity thanks to the first part of the commitments. These assets, in conjunction with the upcoming frequency auction to be organised by the German telecoms regulator, could facilitate the entry or enable the development of a new MNO into the German market in the future.
3) Third, Telefónica commits to extend existing wholesale agreements with Telefónica's and E-Plus' partners (i.e. MVNOs and Service Providers) and to offer wholesale 4G services to all interested players in the future. In addition, Telefónica commits to improve its wholesale partners' ability to switch their customers from one MNO to another.
This remedy improves the position of German MVNOs and Service Providers to whom Telefónica or E-Plus currently grant wholesale access as it provides them with planning security for 2G and 3G services. Furthermore, the opportunity to be granted access to 4G services, even if not taken up, can be used by MVNOs and Service Providers active in Germany in order to improve their negotiating position vis-à-vis Deutsche Telekom and Vodafone.
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 German market and of the market reality, for instance the presence of a significant number of MVNOs and Service Providers in Germany.
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.
Telefónica notified its proposed acquisition of E-Plus to the Commission on 31 October 2013. The Commission opened an in-depth investigation on 20 December 2013 (see IP/13/1304). A statement of objections, setting out the Commission's competition concerns, was adopted on 26 February 2014. Throughout the proceedings the Commission cooperated closely with the German Competition Authority and the German telecoms regulator, Bundesnetzagentur.
Telefónica and E-Plus are both mobile network operators and provide mobile telecommunications services to end consumers in Germany, as well as in related markets such as the wholesale of network access and call origination. Telefónica is a subsidiary of Telefónica S.A., head-quartered in Spain. E-Plus is a subsidiary of the Dutch operator Koninklijke KPN N.V. (KPN). In Germany, only two other MNOs are present in these markets, namely Deutsche Telekom and Vodafone. In addition to the four MNOs, there are MVNOs and service providers currently active in the market, including Freenet, 1&1 and Drillisch. MNOs furthermore cooperate with branded resellers, who distribute mobile communication services contracts on their behalf.
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 three other on-going phase II merger investigations. The first one concerns the proposed acquisition of certain cement and other construction materials' assets of Holcim by Cemex (see IP/14/472). The deadline for a decision in this case is 5 September 2014. The second one concerns the proposed acquisition of titanium dioxide assets of Rockwood by Huntsman (see IP/14/220) with a deadline for the final decision on 18 September 2014. The third one concerns the proposed acquisition of Dutch cable operator Ziggo by Liberty Global (see IP/14/540). The deadline for a decision in this case is 17 October 2014.