Author(s): Kester Mann
A couple of weeks ago, the merger between T-Mobile and Tele2 in the Netherlands formally came to a close. The deal was first announced in late 2017 and just recently received crucial regulatory clearance, thereby trimming the number of mobile operators from four to three. The enlarged T-Mobile Netherlands is 75 percent owned by Deutsche Telekom and 25 percent by Tele2.
Approval had prompted some analysts to suggest a softening stance toward mergers and acquisitions from the European Commission, potentially setting a precedent for a fresh round of deals across the region this year. My view is that this is unlikely. The Netherlands stood out for the very dominant positions held by KPN and VodafoneZiggo in the market for multiplay services, and these two providers comfortably remain in first and second place respectively. Indeed, Tele2's fledgling 4G-only service had achieved only about a 5 percent share of the Dutch mobile market before the deal was struck.
I expect the tie-up to create a more effective challenger brand that will lead to healthier competition and encourage greater investment in networks and services. Further, Dutch consumers already enjoy affordable prices for mobile services, in part helped by a vibrant market for mobile virtual network operators. In addition, the merger had broad support from the local regulator; by contrast, Three's failed deal with O2 in the UK in 2016 was notable for Ofcom's vehement opposition (see Instant Insight: European Commission Blocks Three's Acquisition of O2).
In giving the agreement the green light, the European Commission has disproved the theory that four is the magic number of mobile operators in any given market. Instead, it will judge each case on its own merits. The Dutch deal therefore doesn't represent a change of policy but an openness to evaluate consolidation under the right conditions.
Although I'm pretty sure the floodgates aren't about to open, the absence of formal remedies to sanction the deal should give heart to the struggling European telecom sector, which has long argued for a more favourable regulatory environment. This could be critical if the region is to make up lost ground in the race to launch new 5G networks. The next big decision for the European regulator will be Vodafone's controversial purchase of Liberty Global's assets in Germany and Eastern Europe. The outcome is expected around May 2019.
If I were to pick two European markets to watch on the merger-and-acquisition front in 2019, they would be France and Italy. Discussion among French operators has been a regular occurrence in recent years and the continuing high level of competition triggered by the launch of disruptive entrant Free Mobile back in 2012 suggests a resumption of talks will be a matter of when, not if. However, two major hurdles need to be overcome: regulation, particularly if the deal is judged in Brussels rather than Paris, and the ability of the providers to compromise sufficiently to get any deal over the line.
Iliad's launch into Italy in 2018 has had a similarly devastating effect on the market. Its rock-bottom pricing prompted rivals to slash tariffs, leading to huge value erosion. Having facilitated the French company's arrival in the first place, Wind Tre appears particularly up against it, highlighted by a grim set of financial results in the third quarter of 2018 that included a 13 percent fall in total revenue year-on-year. A complex network integration and probable rebranding programme following the decision by Three to buy out its partner only adds to its challenges.
Rumours of some form of negotiation in Italy would therefore come as no surprise, but given the tough conditions imposed on the original arrangement between Wind and Three, any subsequent agreement will need to be very carefully thought-out. Caution will undoubtably remain the watchword in European deal-making for some time.