Italy’s mobile market is set to enter a period of upheaval following the decision by the European Commission to allow CK Hutchison and VimpelCom to merge their Italian operations in a €21.8 billion ($24.4 billion) transaction.
The EC approved the proposed joint venture that will see Hutchison-owned Three Italy merge with VimpelCom’s Wind to create the largest mobile operator in Italy with more than 31 million mobile and 2.8 million fixed-line subscribers.
The new entity will compete not only with existing players TIM and Vodafone Italy but also with a new mobile player: in accordance with the terms of a remedy package submitted by the two parent companies, France-based Iliad will buy sufficient assets to enable it to launch a fourth mobile operator on the market.
The deal with Iliad was evidently the decisive factor in the EC’s decision to allow the merger to go ahead: competition commissioner Margrethe Vestager made that quite clear at a press conference by saying that the deal in its original form would not have been allowed to go ahead. Indeed, not only would the original deal have reduced the number of mobile network operators from four to three but it would also have removed the market’s two mobile challengers.
“We can approve the deal because Hutchison and VimpelCom have offered a strong remedy that enables a new mobile network operator, Iliad, to enter the Italian market,” Vestager said.
In a nod to previous failed deals, such as CK Hutchison’s recent attempt to buy O2 UK, Vestager added that this case “shows that telecom companies in Europe can grow by consolidation within the same country, provided effective competition is preserved. It also shows they can grow by cross-border expansion, such as Iliad in this case.”
However, it remains to be seen if CK Hutchison and VimpelCom have agreed to what could be a Faustian pact with Iliad: the group has developed a reputation for the unexpected and is not afraid to wade into new markets with some eye-wateringly low prices. The company sparked a price war on France’s mobile market in 2012 that left competitors reeling, and continues to have repercussions to this day.
Kester Mann, principal analyst at CCS Insight, did not mince his words when considering the impact that Iliad could have on the Italian mobile market.
“Three and Wind have taken a risk. Indeed, the market is only just recovering from a damaging price war that resulted in significant reduction in mobile revenue. All operators will need to carefully prepare for Free’s entrance and avoid the complacency of their French counterparts,” Mann said.
He pointed out that the launch of Free Mobile in France in 2012 was one of the most successful of any fourth operator.
“It had a devastating effect on the market, leading to significant customer defection from established rivals and plummeting prices. Less than 4.5 years after launch, it had reached over 12 million mobile customers and claimed a market share above 17 per cent,” Mann said.
Peter Briggs, senior analyst at Current Analysis, added: “Four Italian mobile operators to become … four. No change in those simple numbers, but there’s disruption ahead for the Italian market as Iliad is handed a ready-to-run mobile network and three almost equal-sized customer bases to attack.”
Indeed, Iliad will be able to buy spectrum assets in the 900 MHz, 1800 MHz, 2100 MHz and 2600 MHz frequency bands; take over or share several thousand mobile base station sites; and use the new joint venture’s 2G, 3G and 4G networks for a transitional period.
“We can expect some unusual market dynamics as Hutchison and Iliad figure out how to differentiate meaningfully in a ‘challenger meets challenger’ competition for prepaid custom,” added Briggs.
Briggs did have some praise for the EC, however: “Following its recent rejections of proposed mergers in the UK and Denmark, versus earlier approvals in Ireland and Austria, this latest approval indicates that the commission is not taking a cookie cutter approach but genuinely assessing each such case on its merits, which can only bode well for future restructuring moves,” he commented.
- see the EC release
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