EU regulators to be tested in evaluating Vodafone, Hutchison deals

Two major telecoms acquisitions announced in Europe this past week will be closely watched by industry executives, in part to see how European Union regulators deal with them.

Vodafone has agreed to buy cable operator Kabel Deutschland for €7.7 billion to create an integrated company on the German market that would be better able to compete with Deutsche Telekom.

At the same time, Hong Kong-based Hutchison Whampoa agreed to buy Telefónica's O2 Ireland unit for €850 million in order to expand the footprint of 3 Ireland.

According to Reuters, both deals are likely to be referred to the EU because of their size or cross-border implications. Against the background of a wider debate on whether telecoms companies need greater scale in order to compete in today's competitive and regulated markets, both deals are regarded as key regulatory test cases.

"Both decisions will be keenly looked at by telecoms companies to see if regulators are already willing to take into consideration overall long-term industry dynamics and health instead of the traditional focus on the short-term impact on prices," Peter Alexiadis, a Brussels-based lawyer with Gibson, Dunn & Crutcher LLP, told Reuters.

Discussions at EU level about a single market for telecoms had raised some hopes that antitrust officials might look more kindly on mergers, but competition regulator Joaquin Almunia squashed such hopes by saying there was no evidence that operators would invest more in networks or offer better services to consumers if they scaled up, Reuters reported.

"Until such a single telecoms market comes into life, the Commission will continue to assess competition cases, including mergers, in the framework of national markets," Cecilio Madero, a senior antitrust official at the European Commission, told Reuters.

This indicates that Hutchison might have a bigger fight on its hands, although a comment in the Financial Times suggests that the Hong Kong giant is adept at M&A and has been involved in no fewer than five deals this year.

Vodafone, on the other hand, is not merging with a competitor. In addition, an acquisition of Kabel Deutschland by Liberty Global would have been much more complicated because both are cable groups. The main issue with Vodafone, perhaps, is that a KD acquisition would create yet another large integrated group in a market that probably is more in need of a maverick upstart to shake up prices, at least from a consumer perspective.

For more:
- see this Reuters article
- see this separate Reuters article
- see this FT article (sub. req.)

Related Articles:
'Fascinating' Europe gets a boost from M&A rumours
3 Ireland targets No. 1 spot following O2 Ireland deal
Vodafone to land Kabel Deutschland in €7.7B deal
Reports: AT&T still nurturing European M&A ambitions