In November 2018, following an in-depth Phase 2 investigation, the European Commission (“Commission”) unconditionally approved the acquisition of Tele2 NL by T-Mobile NL, respectively the fourth and third largest players in the Dutch retail mobile telecoms market. The merged entity remains the third largest player in this market after KPN and VodafoneZiggo. This transaction is the first “four-to-three” telecom merger approved without remedies under Commissioner Vestager’s term, following earlier Commission decisions on four-to-three mergers in (i) H3G/Wind, where approval of a joint venture was conditional on the divestment of sufficient assets to allow a new MNO to enter the market; and (ii) Three/O2, an acquisition that was blocked by the Commission. It shows that there is no “magic number” for players in the telecoms market and that much will depend on the specifics of the merger.

Background

T-Mobile NL and Tele2 NL are both mobile network operators (“MNOs”) active in the Netherlands. T-Mobile owns a mobile network with nationwide coverage over which it provides 2G, 3G, 4G and NarrowBand-Internet of Things mobile communication services. It also provides fixed broadband, TV and telephony services based on wholesale access to other operators’ fixed network. Tele2 NL has operated a 4G-only mobile network since 2015, and also offers fixed broadband services. In December 2017, the parties announced that T-Mobile would acquire 75% of Tele2’s shares for EUR 190 million.

In June 2018 the Commission launched an in-depth investigation “to ensure that the proposed transaction between T-Mobile NL and Tele2 NL will not lead to higher prices or less choice in mobile services for Dutch consumers“. The Commission outlined the following preliminary concerns:

  1. The reduction in the number of MNOs and the limited incentives of the merged entity to compete with KPN and VodafoneZiggo, could lead to higher prices and less investment in mobile telecommunications networks.
  2. The lessening of competitive pressure in the Dutch retail mobile market, could increase the potential for the coordination of competitive behaviour between the three remaining MNOs.
  3. Prospective and existing mobile virtual network operators (“MVNOs”), who rely on wholesale access to MNOs’ networks to offer their retail mobile services, could potentially face greater difficulties in obtaining favourable wholesale access terms from MNOs.

Commission approval decision

Following a five month Phase 2 investigation, the Commission cleared the transaction without imposing remedies. In its press release, the Commission stated that its initial concerns had been alleviated for the following reasons:

  1. The transaction is unlikely to lead to significant price increases given that Tele2 NL and T-Mobile NL’s combined market share remains limited (around 25%) and the increment brought about by Tele2 NL is small (around 5%). The Commission also doubted Tele2 NL’s role as a competitive force in the market.
  2. The other two key MNOs in the Dutch retail mobile telecoms market pursue different strategies and have different incentives, relying on their multi-play offers that combine mobile and fixed services. The transaction would therefore not increase the likelihood of coordinated behaviour between MNOs.
  3. Any potential change in conditions for MVNOs due to the transaction would not have a serious impact on the level of competition in the Dutch retail mobile telecoms market.

Comments

The Commission’s decision is noteworthy as it dispels the view that under Vestager the Commission would not allow telecom mergers that would reduce the number of MNOs below four – which consequently became known as the “magic number”. The notion of a magic number was propagated following recent Commission decisions on four-to-three mergers, most notably (i) H3G/Wind, where approval of a joint venture was conditional on the divestment of sufficient assets to allow a new MNO to enter the market; and (ii) Three/O2, an acquisition that was blocked by the Commission.

Commissioner Vestager has actively stated that there is “no magic number” and that each case examined by the Commission is “assessed on its own merits”. It indeed appears that, while the Commission investigated the T-Mobile NL /Tele2 NL merger on the basis of similar theories of harm, the results of its investigation showed that this case was very different:

  1. Non-coordinated effects: In both H3G/Wind and Three/O2, the transaction was deemed to eliminate competition between two strong players and remove an important competitive force from their respective markets. Furthermore, the combined entities would have been the leaders in their markets. In contrast, after their merger T-Mobile NL and Tele2 NL would remain the third largest player on the Dutch market, with a limited combined market share of 25%. The Commission also doubted that Tele2 NL acted as a competitive force in the Dutch retail mobile telecoms market, given its limited market share of 5% and the fact that it was already dependent on T-Mobile’s mobile network to provide its services.
  2. Coordinated effects: In H3G/Wind, the Commission considered that the reduction in the number of market competitors and the removal of Wind would result in the three remaining competitors having similar market shares in a stable and transparent market, thereby making it easier for them to coordinate their commercial behaviour. No coordination concern arose in the context of T-Mobile NL /Tele2 NL because the two other MNOs pursued differing strategies, relying on multiplay offers combining their mobile and fixed services.
  3. Effect on MVNOs: In H3G/Wind and Three/O2, the Commission considered that the transactions would have reduced the number of MNOs willing to host MVNOs, negatively affecting the latter’s negotiating position to obtain favourable wholesale access terms. Conversely, in T-Mobile NL /Tele 2 NL, the resulting changes in conditions for MVNO’s would not have had a serious impact on levels of competition in the Dutch mobile retail telecoms market.

Conclusion

The Commission’s decision confirms what Commissioner Vestager has previously said: four is not a magic number and each case is assessed by the Commission based on its facts. However, it still appears that “four-to-three” mergers will more often than not raise concerns, as set out in a recent report by the Body of European Regulators for Electronic Communications ‘BEREC’. In doing so, BEREC indicated that in its view, three “four-to-three” mergers approved during Commissioner Almunia’s tenure had led to price increases in several national markets. The Commission is expected therefore to continue to scrutinize “four-to-three” mergers closely, and allow the number of MNOs on a national market to be reduced to three only in exceptional circumstances.