Today's decision follows an in-depth review of the deal that combines VimpelCom's subsidiary WIND with Hutchison's subsidiary H3G, respectively the third and fourth largest operators in the Italian retail mobile market. The effective structural remedies offered by Hutchison and VimpelCom fully address the Commission's competition concerns. They will ensure the market entry of French telecom operator Iliad as a new mobile network operator in Italy. This means that the parties can grow and reap the benefits of combining their assets, whilst Italian mobile customers will continue to profit from effective competition.
Commissioner Margrethe Vestager, in charge of competition policy, said: "Mobile services are an important part of our daily lives. Today's decision ensures that the Italian mobile sector remains competitive, so that consumers can continue to enjoy innovative mobile services at fair prices and on high quality networks. We can approve the deal because Hutchison and VimpelCom have offered a strong remedy that enables a new mobile network operator, Iliad, to enter the Italian market.
This case shows that telecom companies in Europe can grow by consolidation within the same country, provided effective competition is preserved. It also shows they can grow by cross-border expansion, such as Iliad in this case.”
The Italian mobile market
The Italian mobile market is currently competitive, with four mobile network operators – H3G, WIND, TIM and Vodafone.
In addition to the four mobile network operators, there are a limited number of mobile "virtual" operators active in the Italian retail mobile market, the largest of which are PosteMobile and Fastweb. These mobile virtual operators do not own the networks they use to provide mobile services to Italian consumers. Instead, they have entered agreements with one of the mobile network operators to use their network at wholesale rates.
Commission’s competition concerns
The Commission had concerns that the transaction as notified would have reduced competition in the market and hampered the ability of mobile virtual operators to compete:
- The transaction would have eliminated competition between two strong players and created the largest mobile network operator in the Italian retail mobile market. H3G is the latest mobile network operator to have entered the Italian mobile market and has been an important driver of competition. WIND has also played an important competitive role on the market. The deal would have left only two mobile network operators, TIM and Vodafone, to challenge the joint venture. The joint venture would have had much less incentive to compete with TIM and Vodafone. Also, TIM and Vodafone would have had fewer incentives to compete. The Commission's analysis showed that the deal was likely to result in less choice and a decrease in quality of services for consumers, as well as higher retail mobile prices charged by all operators than in the absence of the deal.
- The transaction would not only have led to a reduction in the number of competitors and the removal of H3G as a driver of competition, but it would also have created a market with three competitors that have similar market shares. These factors would also have made it easier and more likely for the three remaining mobile network operators (the joint venture, TIM and Vodafone) to coordinate their competitive behaviour on a sustainable basis on the retail mobile market. This coordination would likely have led to a further increase in retail mobile prices for Italian consumers.
- The transaction would have reduced the number of mobile network operators effectively willing to host virtual network operators. Virtual network operators offer mobile services to final consumers by relying on access to the physical network of mobile network operators. Following the transaction, certain existing virtual network operators, and those interested in entering the Italian market, would have had less choice of host networks and hence a weaker negotiating position to obtain favourable wholesale access terms.
The parties have offered remedies that fully address the Commission's concerns, namely the divestment of sufficient assets to allow a new entrant to enter the Italian market as a fourth mobile network operator. This will replace the competition lost and ensure that Italian mobile customers are not harmed as a result of the transaction.
The parties have proposed the French telecommunications operator Iliad as a purchaser for these assets. Iliad is the fourth successful entrant in the French mobile market and has the know-how and expertise to operate, invest and innovate in the Italian market. Today's decision also approves Iliad as the buyer of the assets to be disposed of by Hutchison and VimpelCom (a so-called "fix-it-first" remedy).
More specifically, the remedies consist of:
- divestment to the new mobile network operator of a certain amount of the joint venture’s mobile radio spectrum from different frequency bands (900 MHz, 1800 MHz, 2100 MHz and 2600 MHz);
- the transfer/colocation (i.e. sharing) by the joint venture to the new mobile network operator of several thousand mobile base station sites; and
- a transitional agreement (for access to 2G, 3G and 4G, and new technologies), allowing the new mobile network operator to use the joint venture's network to offer customers nationwide mobile services until the new mobile network operator has built its own mobile network.
The transfer of the spectrum blocks and mobile base station sites will enable the new mobile network operator to develop and roll out its own mobile network in Italy and operate as a fourth mobile operator, providing retail mobile services to consumers and offering wholesale access services to virtual network operators.
The infographic is available in high resolution here.
The Commission found that the proposed remedies address its concerns, because they ensure that a new mobile network operator, Iliad, will enter the Italian mobile market. This will preserve effective competition, maintain incentives to invest in innovative technologies, and ensure that consumers will continue to benefit from effective competition.
For the above reasons and subject to these conditions, the Commission was able to approve the transaction under the EU Merger Regulation.
Merger control rules and procedure
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). There are three on-going phase II merger investigations:
- the proposed acquisition of the French railway equipment manufacturer Faiveley by the US based Wabtec, with a decision deadline on 24 October 2016; and
- the proposed merger of Dow and DuPont, both of the US, with a decision deadline on 20 December 2016; and
- the proposed acquisition of the Greek gas transmission system operator DESFA by the Azeri state oil company SOCAR.