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EC Says Uncertain Tele2 NL Future Drove Merger Approval Decision

The uncertain future of Tele2 as a standalone operator on the Dutch market was a key factor in the European Commission’s decision to clear Tele2 NL’s takeover by T-Mobile Netherlands, said Guillaume Loriot, director of the ICT unit at the DG Competition at the European Commission. Speaking at the ECTA conference in Brussels, Loriot said the decision to not impose remedies on the merger does not reflect a shift in the Commission’s policy on telecom M&A, but the specific conditions of the Dutch case.

Tele2 was “not living up to expectations” on the Dutch market, with just a 5 percent market share six years after becoming a mobile network operator, Loriot said. While Tele2 has been a close competitor with T-Mobile, there was “significant uncertainty” about whether it could continue to compete effectively going forward and gain significant market share, he said. Citing confidentiality requirements, Loriot could not provide further detail, but noted that the uncertain future for Tele2 was “related to its network situation”.

Half a MNO

The doubtful future for Tele2 Netherlands was confirmed by Ilse van der Haar, head of regulatory affairs at Tele2 Group and a participant in a panel on M&A at the ECTA conference. Van der Haar said Tele2 NL was “only half a MNO”, as while it had its own 4G network, it was still “very much dependent on T-Mobile” for 3G and network sharing. “This puts you in the position of a MNO and its cost structure, but with the downsides of a MVNO and the network of someone else,” Van der Haar said. This made it more difficult to become profitable, and “we had to do something about that”, she said.

In addition to its limited position on the mobile market, Tele2 Netherlands also faced the growing importance of the FMC segment on the Dutch market, Van der Haar said. Tele2 Group has shifted from a mobile-led strategy to a greater focus on FMC, as shown by its merger with cable operator Com Hem in Sweden. The company did not see the opportunity to do such a deal on the Dutch market in order to enter the FMC space, so it sought a partner in T-Mobile, Van der Haar said.

No magic number

The EC’s Loriot acknowledged that some may be surprised by the Commission’s decision to not impose remedies on the Dutch merger, which takes the market from four to three mobile operators. However, this “does not represent a change in policy” at the Commission, as each merger case is assessed on its specific characteristics and “there is no magic number” when it comes to the number of mobile networks in each country, he said.

In the Dutch case, the Commission could not show there would be a major impact on competition, so it could not impose remedies, Loriot said. The merger would create a player with an around 25 percent market share, within the EU merger regulation limits, he noted. Furthermore, the merger would not have an impact on the wholesale MVNO market, as Tele2 is not – and did not give any indication of entering – the wholesale market, Loriot said.

Matthijs Visser of RBB Economics, an adviser to Tele2 on the merger and also a panel participant at the ECTA conference, said the Commission was faced with a “counterfactual” assessment, of what would become of Tele2 Netherlands without a merger. While some may focus on the new company created from the merger, there is also the questionable ability of Tele2 to invest without the deal, he said. Either it would need to grow very quickly organically or it would need the merger in order to realise the scale necessary for investing in 5G.

Tele2’s Van der Haar suggested that growing organically was not an option, due to the specific characteristics of the Dutch market. The two vertically integrated operators [KPN and VodafoneZiggo] “with a specific strategy of protecting their fixed base by offering mobile discounts” on FMC packages meant the base of potential customers for mobile-only providers was quickly shrinking, she said. – Telecom Paper

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