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.
The commitments...
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.
Background
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.
Companies
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.
More information on this case is available on the Commission's competition website, in the public case register under the case number M.7018.
