Telefónica asserts Spanish strength after EU approves Orange-Masmovil merger

  • Orange and Masmovil received regulatory approval to merge their operations in Spain

  • The regulatory process took a long time because of concerns over the potential impact of the merger on Spain’s mobile market

  • Telefónica says it will remain a competitive force in its domestic market

Telefónica is confident it will remain a competitive force in its domestic market now that Orange and Masmovil have received regulatory approval to merge their respective Spanish operations to create a new fixed and mobile behemoth in Spain.

Speaking during Thursday’s earnings call for its 2023 fourth quarter and full-year results, Telefónica Group CEO and Chairman José María Álvarez-Pallete said Telefónica España was able to stabilize its operating income before depreciation and amortization (OIBDA) during Q4 2023, “proving that our operation in Spain is becoming stronger and stronger.”

“We feel prepared to keep building on the positive trends of our Spanish unit,” Álvarez-Pallete said. “We are fully confident on its future.”

Ángel Vilá, Telefónica Group chief operating officer, conceded that the landscape will shift once Orange and Masmovil have integrated their Spanish operations into a 50:50 joint venture, but insisted that Spain remains “a dynamic and competitive environment.”

“It will continue to be a segmented market between the premium segments and the medium and low cost, which is much more dynamic, and we don’t expect that segmentation and the competitiveness of the market to change,” he said.

Digi to play key role as Orange-Masmovil JV takes shape

Telefónica inevitably faced questions about its stance on the Orange-Masmovil merger after the European Commission finally approved the deal this week following a protracted in-depth investigation. Orange Group said it expects to complete the merger transaction before the end of March 2024.

The regulatory process took so much time because of concerns over the potential impact of the merger on Spain’s mobile market. For instance, Masmovil provides a range of competitive mobile offerings through its broad portfolio of brands.

The commission’s eventual decision to green light the deal was primarily owing to a package of measures or remedies that Orange-Masmovil agreed in December with Digi Communications. The Romania-based group currently operates a mobile virtual network operator (MVNO) called Digi Spain, which is also building its own fiber network.

To address the commission’s competition concerns, Orange and Masmovil committed to sell spectrum held by Masmovil to Digi across three frequency spectrum bands (1,800 MHz, 2,100 MHz and 3.5 GHz), to allow Digi to build its own mobile network.

In addition, Digi has the option to enter into a national roaming agreement with the joint venture in the future, although it could choose to remain with its current wholesale partner, which is Telefónica, or pick another operator, such as Vodafone Spain.

Vilá noted that the merger remedies had been expected and indicated that Telefónica will do all in its power to retain Digi as a wholesale partner and bag any future roaming or network sharing deals. “We have been working on contingency actions for this type of situation,” he said.

Vilá suggested that the spectrum to be sold to Digi is insufficient to build a full-fledged mobile network in Spain. That means it would require a national roaming deal and possibly a RAN sharing arrangement to cover the entire Spanish market, he said.

“We are clearly in a position to negotiate with Digi on these fronts,” Vilá said. He also pointed out that the roaming agreement remedy “is an option for Digi, not an obligation. Our partnership with Digi is assured under a long-term wholesale agreement. We believe that Digi is satisfied with the deal that we have now and the service that we are providing.”

Missed opportunity

Both Vilá and Álvarez-Pallete nevertheless reiterated their belief that the Orange-Masmovil merger should have been approved without any remedies at all.

Álvarez-Pallete described it as a “missed opportunity” for the commission to “send another message” about how it intends to support future investments on the European telco market.

However, he did welcome a European Union white paper published on Wednesday that presents “a set of possible actions to foster the innovation, security and resilience of digital infrastructures.” The aim is to reduce market fragmentation and help create a European single market for telcos.

“It is a very good call to action. We think things are starting to change. It’s just the beginning, but it’s a step into the right direction,” Álvarez-Pallete said.

At the same time, earlier reports that the commission is considering easing in-market telco consolidation have not been confirmed. According to Reuters, when asked by reporters about any possible changes in EU merger rules, European Commissioner Margrethe Vestager said: “No, none that I have heard of.”

As for Vodafone Spain, it is in the process of being sold to Zegona Communications. The country’s regulator Comisión Nacional de los Mercados y la Competencia (CNMC) recently approved the acquisition, noting that it “does not give rise to horizontal or vertical overlaps, so it will not introduce significant changes in the market structure.”

Spanish newspaper El Economista also reported that Zegona is in negotiations to acquire Spanish fiber broadband provider Avatel Telecom to bulk up Vodafone Spain and enable it to better compete with two strong rivals.


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