Is MNO convergence reaching its limit?

On 11 September 2015, Telenor and TeliaSonera announced that
they were abandoning their plans to merge their Danish businesses, indicating
that discussions with the European Commission (Commission) had”reached a point where it [was] no longer possible to gain approval for the
proposed transaction“.

The merger would have created the largest MNO in the Danish
market and resulted in a reduction in the number of MNOs in Denmark from four
to three.  However, it appears that the
parties were unable to reach an agreement with the Commission as to how to
address the Commission’s competition concerns in full.

Following the announcement, Margrethe Vestager, the EU
Commissioner for competition, published a statement stating that the
significant competition concerns arising from the merger would have required
“an equally significant remedy.  This means the creation of a fourth mobile
network operator.“

What does this mean for future MNO convergence?

Vestager’s statement provides insight into the Commission’s
concerns and what remedies it was looking for before approval for the merger
could have been granted.

In light of Vestager’s comments that “ensuring markets are competitive is key both
to spur on much needed innovation and investment in European telecoms markets,
as well as to offer affordable prices to consumers“, this decision
indicates that the Commission deems four MNOs to be a competitive market but three
MNOs not to be. 

While Commissioner Vestager has cautioned against drawing
any conclusions with regard to on-going consolidation in the Italian and UK
mobile network industries, the decision nevertheless raises alarm bells for the
proposed acquisition by Hutchison 3G (owner of Three) of Telefonica’s UK
business (O2 UK), which will reduce the number of MNOs in the UK from four to
three and, in the process, create the second largest MNO in the UK. 

Vestager’s decision may also have come as a surprise to the
telecoms industry, given that Vestager’s predecessor had previously given the
green light to similar four to three MNO consolidation in Ireland, Germany and Austria.

In an interesting twist, the UK’s Competition and Markets
Authority (CMA) announced on 16
September that it is considering making a request to the European Commission
for the Three/O2 UK merger to be transferred back to the UK.  If such a request is made and the Commission
were subsequently minded to agree to it, this would give the CMA jurisdiction
to review the merger under UK merger control. 
In such a case, it would be entirely possible for the CMA to reach a different
view to the Commission on whether three MNOs are sufficient to preserve effective
competition. 

The deadline for the CMA to submit a referral back request
is 24 September 2015.