The European Commission has given the green light to the planned merger of Ziggo and Vodafone Netherlands. The two companies will be merged in a 50-50 joint venture, with a Vodafone executive becoming the CEO. The approval was not without conditions: Vodafone must sell its fixed business in the Netherlands. The ACM has also signalled it could reconsider wholesale cable access regulation.
Telecompaper has written previously about the strategic rationale of the merger, which is driven by the need to offer a complete package of fixed and mobile services, as KPN does, and to reduce costs in order to continue to pay dividends. The overlap between the two companies is limited, and there will be little change to market shares. Vodafone had 123,000 fixed broadband customers at the end of June, while Ziggo counted 197,000 mobile subscribers in March (Q2 results will be reported 04 August).
Vodafone Thuis, the mobile operator's fixed business, has quickly built up a position as challenger on the Dutch market. As such, the required sale of the fixed business in an attempt to safeguard competition is not a surprise. The most likely buyer is Tele2, which while spending a great deal of time and money building its own mobile network, has neglected its fixed business and needs the additional scale if it hopes to turn a profit.
The EC clearly sees Vodafone Thuis as offering potential for shaking up the competition and enriching the Dutch market. Vodafone NL's own former CEO said in late 2014 when the company started scaling up its fixed activities: "9 out of 10 households is a customer of KPN or cable, there is hardly any choice for the consumer. An alternative is truly needed." In addition to KPN and Ziggo, the other players on the Dutch fixed market are Tele2, Online (M7), Caiw (CIF), Delta, smaller cable operators and independent FTTH operators. In theory, they are all potential bidders for Vodafone Thuis. The over 100,000 Vodafone customers would help any of them pass an important milestone in terms of scale.
KPN aside (and which must be ruled out as buyer for competition reasons), Tele2 is the biggest player, with 347,000 fixed customers, but the Dutch operator's cash flow is practically negative. Vodafone also said in its statement on the EC's approval that it could do a deal for MVNO network access with the potential buyer, suggesting Tele2 is not the most likely candidate. This points to the smaller fibre players, such as Caiway and Fiber.nl (which already bought Stipte). These companies are taking advantage of the quickly growing FTTH market in the Netherlands and may be interested in also adding mobile to the mix. Vodafone is active on both DSL and FTTH, but it is unknown the split in its customer base.
The announcement from the EC also brought some interesting comments from the Dutch regulator ACM. Its request to investigate the Vodafone-Ziggo merger was rejected by the EC, but the ACM has suggested it may yet have more to say about the deal. In a statement issued shortly after the EC's announcement, the ACM said it will look at whether current regulation needs to be "adjusted or strengthened" in order to ensure enough network access options for rivals of the two big players on the Dutch market.
This suggests the long-running debate about wholesale cable access in the Netherlands may be open again. The ACM ruled out imposing network access obligations on Ziggo in its last analysis of the fixed broadband market, which coincided with Ziggo's merger with UPC. Its latest regulations maintaining wholesale access obligations for KPN's network took effect at the start of this year, but it could be tempted to accelerate the process of a new market analysis, in particular given the growing importance of quad-play packages in the market. This may just be a warning from the Dutch regulator, but it sounds like Ziggo and Vodafone's honeymoon may not last long.
