European Commission approves a joint venture between the third and fourth largest telecom operators in Italy, subject to structural remedies

By Valerio Cosimo Romano

On 1 September 2016 the European Commission approved a proposed joint venture between Vimpelcom and CK Hutchison, respectively the owners of Wind and H3G (the third and fourth largest telecom operators active in the Italian market). The approval was conditioned on a divestment of assets, which would enable a new operator to enter the market and roll out its own mobile network.

Earlier in 2016, the European Commission had halted the proposed acquisition of O2 by Hutchison in the UK, citing strong concerns that it would have led to less choice and higher prices for consumers, and that the deal would have harmed innovation in the mobile sector.

Currently, the Italian mobile market has four mobile network operators (MNOs) and a number of mobile virtual operators (MVNOs), which use the networks provided by MNOs at wholesale rates.

Vimpelcom and CK Hutchison notified the EU Commission of the proposed joint venture on February 5, 2016. After an in-depth phase-II review, the EU Commission came to the conclusion that the transaction would have reduced competition in the market. More in detail, the European Commission found that the three resulting operators (TIM, Vodafone and the Wind/H3G joint venture) would have had fewer incentives to compete, resulting in a lessening of choice and a decrease in quality of services for consumers, as well as higher retail mobile prices. Further, the Commission identified the possibility of coordination on a sustainable basis, likely to result in an increase in retail mobile prices for Italian consumers. The European Commission also expressed concern that, following the transaction, the incumbent and entrant MVNOs would have  less choice of host networks and hence a weaker negotiating position to obtain favorable wholesale access terms.

In order to address the Commission’s concerns, the concerned parties offered to divest and share sufficient assets (mobile radio spectrum; mobile base station sites, access to 2G, 3G and 4G, and newer technologies) to allow Iliad to enter the Italian market as a fourth mobile network operator and 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 Commission found that the proposed structural remedies offered by Hutchison and VimpelCom fully address its concerns and will preserve effective competition, maintain incentives to invest in innovative technologies, and ensure that consumers will continue to benefit from effective competition. For the reasons above, the Commission approved the proposed transaction.

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