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    TEF   ES0178430E18


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SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

EU antitrust watchdog put to test with Vodafone, Hutchison deals

06/26/2013 | 12:12pm EDT
A customer stands next to the Vodafone logo in a shopping mall in Prague

PARIS/BRUSSELS (Reuters) - European regulators will soon weigh in on two telecom acquisitions worth about 11.5 billion euros (9.7 billion pounds), in key test cases for a sector that executives believe needs consolidation to counter falling sales and boost network investments.

Hutchison Whampoa agreed on Monday to buy Telefonica's 02 Ireland unit for 850 million euros, which would reduce the number of operators from four to three, a threshold long seen as controversial for competition regulators concerned about price rises.

Separately, Vodafone agreed to buy Germany's biggest TV provider Kabel Deutschland for 7.7 billion euros. The tie-up would create a strong integrated competitor to former-monopoly Deutsche Telekom which is likely to be seen as positive for competition.

But it could also set the country down a road to a risky duopoly, with Vodafone and Deutsche Telekom each retaining control of slightly more than a third of German mobile revenue and Vodafone gaining power in fixed-line communications.

Both deals are likely to be reviewed by the European Commission instead of the local authorities because they are over a certain size or have major cross-border implications.

And both reviews will provide lessons for future deals of these types. Italy, Germany, and Spain are four-player mobile markets expected to consolidate in the coming years, while mobile giant Vodafone is weighing more fixed-line deals in Spain and Italy.

Competition lawyers and bankers interviewed by Reuters said they believed antitrust regulators would ultimately approve the two deals, perhaps with conditions imposed to protect competition, such as spectrum divestments or wholesale access to mobile and fixed competitors on fair terms.

Nevertheless, the reviews will be a reckoning for the industry because they come during a broader fight between telecom operators and European leaders over whether the region's regulations have sapped the companies' ability to invest in new faster networks and compete globally.

"Given the background music of the debate over whether European telecom groups need greater scale, we have a unique opportunity with these parallel deals to test the receptiveness of antitrust regulators to this tune," said Peter Alexiadis, a Brussels-based lawyer with Gibson, Dunn & Crutcher LLP.

"Both decisions will be keenly looked at by telecoms companies to see if regulators are already willing to take into consideration overall long-term industry dynamics and health instead of the traditional focus on the short-term impact on prices."


Before the recent deals, big telcos had lobbied hard for the European Commission to take a softer line on mergers, especially within countries, to reduce the number of operators and reverse several years of declining sales.

Their hopes were raised in February when Neelie Kroes, EU commissioner for the digital agenda, backed the idea as part of her effort to pass reforms this year to foster a "single market" for telecom services in the region.

Yet top competition regulator Joaquin Almunia remained sceptical, arguing in a February speech that there was no evidence that operators would invest more in networks or offer better services to consumers if they scaled up.

According to antitrust law, his office must evaluate merger impact on a national basis, not based on broader industry issues.

"Until such a single telecoms market comes into life, the commission will continue to assess competition cases, including mergers, in the framework of national markets," said Cecilio Madero, a senior antitrust official at the European Commission, at a conference Tuesday.

On that basis, Hutchison's proposed purchase of Telefonica's 02 business in Ireland is likely to pose bigger antitrust issues than Vodafone's mega-deal in Germany, competition lawyers said.

Hutchison's 3 brand would vault from fourth to second place with a market share of 37.5 percent, just behind Vodafone's 39.4 percent and ahead of Meteor's 19.7 percent, according to data from the Irish regulator.

Hutchison is prepared for the fight because it went through a similar review in Austria last year when it bought larger rival Orange to take a very competitive market of roughly 8.4 million people to three players.

Approval was secured after a long review but regulators exacted a heavy toll, including reserving spectrum in a mobile auction due this autumn for a new competitor. Hutchison had to give local cable operator Liberty Global favourable wholesale terms to start a mobile service, and divest assets and spectrum.

In Ireland, lawyers say Hutchison will seek to avoid such harsh remedies by arguing that the market will remain competitive with three players. Since fourth generation mobile spectrum was sold in Ireland last December, regulators won't be able to bring back a fourth player if consolidation is approved.

Key to the regulatory review will be mobile pricing. According to an analysis of mobile pricing in 27 European countries by consultancy Rewheel, Ireland is a "progressive" mobile market because operators Meteor and 3 have lowered smartphone plan prices and give large mobile data allotments.

But Ireland mobile prices remain quite high compared to other competitive countries like Britain, Sweden or Austria, said Rewheel's Antonios Drossos. "The worry is that after the merger, prices would stay high or go higher," he added.

Hutchison did not immediately reply to messages left seeking comment on what remedies if any it would offer in Ireland. The company said on Monday it was confident the deal could be completed in six to nine months.

Meanwhile, Vodafone's proposed buy of Kabel Deutschland in Germany poses a new and different set of issues to regulators because it marries two mainly complementary businesses and networks - one in mobile and the other in fixed.

The deal would not affect mobile market share, with Deutsche Telekom and Vodafone each retaining 34 percent of mobile revenue at the end of 2012, followed by KPN and Telefonica with 16 percent each. In fixed telephony and broadband, Vodafone would jump from 10.2 percent share to 18.9 percent after the deal, according to Exane BNP Paribas.

Such market share figures are not likely to spook antitrust regulators, so they will focus on the question of the new company's relationship with Deutsche Telekom, said Frederik Wiemer of law firm Heuking Kühn Lüer Wojtek.

The new company would be more independent of Deutsche Telekom because it will no longer have to rent fixed broadband lines into homes. Vodafone today owns some of its own broadband lines, but very few.

"Germany would have two big companies able to offer all-included bundled packages to consumers, which is pro-competitive long-term," said Wiemer. "So in the end the positive effects could outweigh the negative impact from concentration in the broadband market."

(Additional reporting by Sophie Sassard and Georgina Prodhan)

By Leila Abboud and Foo Yun Chee

© Reuters 2013
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Sales 2021 40 795 M 49 395 M 49 395 M
Net income 2021 2 417 M 2 927 M 2 927 M
Net Debt 2021 37 873 M 45 856 M 45 856 M
P/E ratio 2021 9,43x
Yield 2021 7,78%
Capitalization 22 144 M 26 786 M 26 812 M
EV / Sales 2021 1,47x
EV / Sales 2022 1,46x
Nbr of Employees 112 543
Free-Float 91,4%
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Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 29
Average target price 4,80 €
Last Close Price 4,08 €
Spread / Highest target 113%
Spread / Average Target 17,6%
Spread / Lowest Target -36,3%
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José María Álvarez-Pallete López Executive Chairman & Chief Executive Officer
Laura Abasolo García de Baquedano Chief Financial & Control Officer
Alejandro Ramos Chief Information Security Officer
Ángel Vilá Vilá Boix Chief Operating Officer & Director
Peter Erskine Independent Non-Executive Director
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TELEFÓNICA, S.A.25.72%26 786