Analysts: Telenor, TeliaSonera's Danish dilemma could impact similar deals in UK and Italy

Telenor and TeliaSonera's decision to abandon a planned merger of their Danish operations is a sign that the European Commission (EC) is toughening its stance on mergers that reduce the number of operators in individual markets, analysts and industry experts said.

The operators announced late last week that they have dropped plans to form a 50:50 joint venture by combining their Danish businesses due to difficulties in meeting EC conditions designed to ensure competition in the market was not affected.

If the merger had gone ahead it would have reduced the number of network operators in the country from four to three, in the process creating a giant that eclipsed rivals TDC and Hi3G (Three Denmark) in terms of subscriber numbers and revenues.

TeliaSonera said the operators took decisive action to avoid uncertainty about the deal after it became clear that discussions with the EC would not bear fruit in terms of gaining approval for the merger.

Steven Tas, chairman of the European Telecommunications Network Operators' Association (ETNO) told the Wall Street Journal the EC had missed the point of such mergers, which would be to create operators with the scale and financial clout necessary to fund investment in new infrastructure.

Operators argue that such investment is needed to meet the goals of the EC's vision of a digital single market in Europe.

The apparent reluctance of EC Competition Commissioner Margrethe Vestager to clear mergers that would reduce the number of operators in a market from four to three could also impact other pending deals, including CK Hutchison's acquisition of O2 from Telefonica in the UK, and its recently announced plan by to merge its Three Italy with local rival Wind.

Denmark-based telecoms analyst John Strand told Reuters that there is now a very real threat to the future of the planned transactions in the UK and Italy, reasoning that if Vestager would not allow a reduction in the number of operators in Denmark, she would be unlikely to clear similar deals in those other markets.

Kimmo Stenvall, an analyst at Finland-based Pohjola Bank, told Bloomberg that the tough line taken by the EC regarding the Danish merger was a "setback for the entire European telecoms market," that would have the knock-on effect of, at the very least, slowing the process of approving the other mergers being considered.

However, Vestager hit back, telling Reuters that the conditions sought for the Danish merger were not necessarily an indication of a similar tough stance on the deals in the UK and Italy.

For more:
- see this Wall Street Journal report
- view this Reuters article
- read this Bloomberg report

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