M&A momentum stutters in Europe's mobile markets

In recent years, several well-documented mergers and acquisitions have taken place in Europe's mobile market, including the closely watched deal in Germany that saw Telefonica snap up E-Plus to form a major competitor to rivals.

The E-Plus acquisition, as well as the approval of deals by Hutchison Whampoa -- now CK Hutchison -- to buy Orange Austria and O2 Ireland, gave confidence to those players in the industry that had been waiting to see how the European Commission would deal with M&A. So far, so good, they thought. And more potential deals have been announced since, including Hutchison's plan to buy O2 UK and Wind in Italy and TeliaSonera and Telenor's proposal to merge their respective units in Denmark.

The announcement last week that TeliaSonera and Telenor had abandoned their plans in Denmark after being unable to agree to concessions to appease the European Commission (EC) has sent one or two shock waves throughout the market.

Now, rather than thinking the EC would be more inclined to approve mergers, there is a growing feeling that life under European Competition Commissioner Margrethe Vestager is going to be a lot tougher. Indeed, Hutchison could have much more of a battle on its hands in the UK and Italy than with previous deals.

The Hong Kong-based company has now submitted its UK proposal to the EC and is no doubt formulating the concessions it would be prepared to make to secure the deal. Liberty Global has already offered concessions in a bid to secure EU approval for its €1.33 billion ($1.5 billion) bid for KPN's Belgian unit, Base.

Why Vestager is taking a tougher stance than her predecessor is not entirely clear, but she displays reluctance to clear mergers that would reduce the number of operators in a market from four to three.

It is possible that she has been influenced here by the Austrian example, where prices rose following the merger of Orange Austria with Three Austria. However, prices in Austria had become increasingly cutthroat, and operators there have certainly welcomed the end of the downward price spiral. Market observers have generally speculated that Vestager is approaching these mergers from the point of view of consumers and the impact on competition rather than the need for consolidation to boost investment in networks.

Vestager has reportedly said 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. Clearly, she will need some convincing that three is better than four in a particular market. Jefferies International analysts pointed out that "EC insistence on Danish mobile not consolidating down to three MNOs was a result of specific market analysis, not an article of faith."--Anne