Orange and MasMovil's $19bn Spanish telecom merger is set to be a test case for whether Europe’s antitrust regulators have become more lenient in approving deals that reduce the number of mobile operators.
Buried under debt in small, competitive markets, Europe’s telecom operators have been talking about consolidation for years but were wary of scrutiny by regulators, which have taken a tough line on moves that lower competition.
The pandemic, however, has underscored the importance of telecom networks, and regulators may have become more sympathetic to mobile operators trying to cut debt through mergers and invest in new 5G services, industry analysts say.
The commission did not immediately respond to a request for comment.
Regulators are concerned mergers could lead to higher prices, less choice and a reduction in quality for consumers, particularly if two players join forces in one market.
MasMovil does not have a large mobile network in Spain and is confident demands by regulators as a condition for approving the deal would not be too onerous, according to sources directly involved in the process.
Orange will seek to counter possible regulatory concerns by pointing to the rollout of fibre in Spain and the expansion of mobile companies into areas such as broadband as proof of strong competition in the country, a person familiar with the matter said.
The companies aim to take the combined business public in three to four years, after closing the deal in the second half of 2023.
In Europe, many countries have four telecom operators jostling for share in small markets, which usually equates to lower prices for consumers but less profit for the companies, analysts say.
In contrast, the US is dominated by three main players — AT&T, Verizon and T-Mobile. That can result in higher prices for customers and higher profits for the companies.
Vodafone, Orange, Telefonica and Deutsche Telekom are the biggest European telecom operators and have a presence in several countries.
Any deal that reduces competition in European countries from four players to three would be likely to benefit their businesses in the long term by enabling them to raise prices, analysts say.
Vodafone, a vocal supporter of consolidation, is reportedly in talks with Hutchison’s Three network in Britain.
Vodafone boss Nick Read declined to comment on any potential deal on Monday, but reiterated there is room for consolidation in Britain.