When The European Competition Watchdog Becomes A Dog In A Manger

The sale of Telefonica’s O2 to Hong Kong telecoms giant Hutchison remains up in the air. And the European Commission (EC), which has the final responsibility for the outcome of the transaction, is still being a dog in a manger, under pressure from the UK authorities. So the deal is being kept in a state of permanent indefinition, one year after the two companies involved reached an agreement.

After delaying the final decision until May 19th, nothing seems to satisfy the Commission. The result of this is that its known role is neither to reject the operation out of hand, or fully authorise it, despite the fact that Hutchison is offering all kinds of alternatives: the latest one being the sale of a stake in Three to a new investor, with which it hopes to soften the EC’s tough position. As of now, this seems to be that it will approve the purchase, but with draconian conditions including substantial divestments. This could lead Hutchison to renegotiate the agreed price for the deal (about 14 billion euros) or decide against buying certain assets.

It’s all about increasing competition in the UK telecoms market, without taking into account that if there is a problem of excessive concentration in the spectrum in the UK, this is the result of the merger between British Telecom (BT) and Everything Everywhere (EE) (T-Mobile & Orange).

On the other hand, the share of the spectrum in the hands of the combined O2-H3G would be similar to that currently held by Vodafone and half of that of BT and EE. The whole issue is particularly significant for Telefonica, which is hoping for a successful conclusion to the operation to reduce its high debt levels and meet its dividend commitments. Without that, the most worrying consequence for the Spanish firm would be a rating downgrade, which would increase its financing costs.

About the Author

Carlos Díaz Guell
Editor at consensodelmercado.com and innovaspain.com, Carlos began his career in financial journalism as founding member of El País. He's been communications director of Bank of Spain, member of the ECC at the European Central Bank, Institutional Relations director at Iberia and editor at La Economía 16 magazine.