The European Commission has decided not to reject outright the T-Mobile and Tele2 Netherlands merger and thrown the ball back in the operators' court to come up with remedies to its competition concerns. The main issue is whether the mobile retail market will suffer from the disappearance of Tele2 as the fourth operator. The merged operator's ability to take on the 'joint dominance' of KPN and VodafoneZiggo on the Dutch market is apparently not enough for the EC. Still, the deal is likely to win approval, with the help of Simpel or EQT. Or T-Mobile could decide to abandon the acquisition.
The EC's concerns appear to centre on the loss of Tele2 as challenger on the mobile market. T-Mobile NL notes that the merged group would still be the smallest on the market, and the Tele2 brand and its offering, including the EUR 25 unlimited data deal, would remain active for some time.
The Commission's view is not a surprise; the deal would reduce the Dutch market to three networks rather than four, a situation the EU has repeatedly had a problem with. The creation of a strong number three on the fixed-mobile market is apparently not enough to allow the deal to go ahead as is. T-Mobile will have to accept this, as well as the likely the creation of a strong fourth player on the mobile retail market at least.
T-Mobile: find remedies or abandon deal
One the positive side for T-Mobile, the Commission has not rejected the merger outright. The company's response suggests it still aims for clearance without significant conditions, but the Commission is unlikely to accept that. T-Mobile did not mention any possible remedies or concessions, which could mean it doesn't believe any would work. As a result, we can't rule out the company dumping the deal and paying the EUR 25 million break-up fee to Tele2, rather than give any ground to a new fourth operator.
Nevertheless, the merger going ahead with conditions appears the most likely scenario, as this is a unique opportunity for T-Mobile to strengthen its position. Remedies could take various forms:
- An asset deal, as seen in Italy, where Iliad acquired assets from Wind and Tre when they merged, in order to create a new fourth operator. The effects on the retail market are still being felt. Given that Tele2's assets are largely redundant for T-Mobile, this solution could easily be translated to the Dutch market. Iliad has also been mentioned as a possible contender for the fourth network in Belgium and Germany.
- An access deal, as seen on the German market when Telefonica (O2) acquired E-Plus. The condition was that MVNO Drillisch received access to dedicated capacity on the merged company's mobile network. This model would also work in the Netherlands, with one of the bigger MVNOs.
- Other possibilities could include T-Mobile selling its second brand Ben. Its position in the low-cost segment could be replaced with the Tele2 brand after the merger.
Candidates: Simpel and EQT
T-Mobile needs to negotiate with the potential 'remedy partners' to reach an agreement that wins over the EC, without cutting off its own nose. An asset deal like in Italy is risky, especially if a company like Iliad joins the fray. T-Mobile could try this, or an access deal, with a less threatening party, such as one of the mid-tier operators in the Dutch market. There are not many candidates there: M7 (Canal Digitaal, Online) does not appear interested, and Lebara and Lyca even less, leaving Simpel (a MVNO on the T-Mobile network) and EQT (Delta, Caiway, CAIW) as the only serious contenders with enough of a customer base and financing for such a deal.
According to Telecompaper research, Simpel has doubled its postpaid customer base in the past two years to 655,000, making it the fastest growing mobile provider on the market. An asset deal would send Simpel down the same path followed by Tele2: from MVNO to MNO. Its main shareholder Parcom could provide the necessary financing. An access or capacity deal would mean better wholesale conditions from T-Mobile, and taking over the Ben customer base also wouldn't hurt.
For EQT, an asset deal would add a national mobile operator to its regional cable and FTTH business (which is potentially going national), strengthening its ability to compete on the growing FMC market. In this case, not only would the market get a fourth mobile operator, but also a fourth FMC provider. An access deal may be less likely with EQT, as Delta has only recently re-entered the mobile market as a MVNO on the T-Mobile network.
