Telefónica Deutschland's E-Plus buy tipped to boost European MVNOs

Telefónica Deutschland's plan to buy E-Plus from KPN is set to benefit mobile virtual network operators throughout Europe, analysts say.

The European Commission (EC) approved the €8.6 billion ($11.6 billion) deal this week after accepting that commitments by Telefónica Deutschland to open up 30 per cent of the combined network to MVNOs will maintain competition in Germany, despite the merger cutting the number of full network operators in the country from four to three.

In an e-mailed statement, ratings agency Fitch noted the MVNO commitments includes access to LTE (4G) networks at commercial wholesale rates, which it believes will become a model for future MVNO deals throughout Europe.

"A minimum five-year deal including 4G access has already been signed with Drillisch and 4G access will be made available to other MVNOs a year after this deal begins. This is significant because to be an effective competitor, MVNOs need clarity in their agreement with the network operator and a degree of future proofing as technology develops," Fitch said.

The ratings company added that access to LTE capability will be an essential element to the long-term survival of MVNOs, and that the EC has established "a clearer framework for MVNOs in the context of market consolidation," at a time when established operators may have otherwise considered making it difficult for MVNOs to access LTE as they seek to use the technology as a differentiator.

James Robinson, telecoms regulation analyst at Ovum, noted that the access commitments will "improve the position of German MVNOs and service providers to whom the two operators grant wholesale access by providing planning security for 2G and 3G."

On the other hand, analysts from Jefferies said the LTE MVNO commitment may prove negative for rival network operators Deutsche Telekom and Vodafone. While E-Plus parent KPN is "left with limited exposure to uncertainties created by the remedies," Telefónica Deutschland's established rivals "might well suffer from the emergence of Drillisch as a more noticeable market force and the availability of meaningful 4G to existing service providers such as Freenet and United Internet."

Stefan Zehle, CEO of Coleago Consulting, added that Germany "already has a vibrant MVNO market, not least as a result of the E-Plus multi-brand wholesale strategy."

He said the EC's clearance of the acquisition shows it is "satisfied that these MVNOs will not be harmed by reduced competition at network level," and that the "existence of competitive MVNOs also acts as an insurance against unwarranted retail price hikes", which will help to maintain competition in the market.

While Jefferies analysts referred to the likelihood of further consolidation in European markets following approval of the German deal--it is widely regarded as a bellwether agreement that will open the floodgates for similar deals--the company pointed out that the EC stressed "that each case will be reviewed individually, and that remedies are chosen for a specific market situation."

For more:
- see this Ovum comment
- read Fitch Ratings statement

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