Telefónica grants network access to Drillisch to secure E-Plus merger approval

Telefónica Deutschland said it has agreed to provide network capacity to German mobile virtual network operator (MVNO) Drillisch to help smooth the regulatory path of Telefónica's proposed €8.6 billion ($11.7 billion) merger with KPN-owned E-Plus.

According to Reuters, the operator is now no longer in talks with any other mobile operators: as well as Drillisch, Telefónica was believed to have courted Liberty Global's German business Unitymedia as well as Freenet. However, sources told Reuters that Telefónica is not talking to others after the Drillisch deal and that approval of the E-Plus acquisition should now not be a problem.

Under the agreement, Drillisch is to acquire 20 per cent of the capacity of all mobile networks that will be under the control of Telefónica Deutschland following the completion of the proposed acquisition of E-Plus. This 20 per cent will be reached via a glide path mechanism over a period of five years. In addition, Drillisch shall have the right to acquire up to 10 per cent additional capacity of those networks, Telefónica added.

"The agreement has been entered into with a view to the pending decision by the European Commission in the merger control proceeding relating to the acquisition of E-Plus by Telefónica Deutschland, which is expected in the near future," the operator said, adding that the decision by the European Commission on the merger is expected in July.

The move follows speculation that Telefónica Deutschland is close to securing approval from the Commission on the E-Plus deal, and that remedies submitted to allay competition concerns included agreements with MVNOs.

The European Commission recently approved plans by Hutchison Whampoa to buy O2 Ireland after the Hong Kong-based company agreed to grant 30 per cent of its future network capacity to two MVNOs, believed to be Carphone Warehouse and UPC.

Nevertheless, national regulators in Europe are reportedly not happy with the solutions that the Commission has secured to balance out the effects of reducing the number of mobile network operators within a single market from four to three.

Ireland's regulator ComReg has already said it believes the measures agreed to by Hutchison Whampoa are not enough. A report this week also said a recent EC advisory committee meeting saw 10 out of 12 national regulators either abstain from voting or vote against Telefónica Deutschland's planned acquisition of E-Plus because they were unhappy with the proposed competition remedies. In addition, Germany's cartel office is believed to have written to European Competition Commissioner Joaquin Almunia and fellow agencies across Europe, warning against the merger.

Meanwhile Drillisch already uses network capacity from both Telefónica and Vodafone Germany and operates as an MVNO and mobile services provider under brands such as helloMobil, eteleon, simplytel and more. It was first established in 1983 and today employs 350 people.

In the first quarter of 2014, the company reported service revenue of €70 million ($95 million) and 1.76 million MVNO customers. The company is forecasting EBITDA of €82 million to €85 million for 2014, with further growth to €95 million to €100 million in 2015.

For more:
- see this ad hoc statement by Telefónica Deutschland
- see this Reuters article

Related Articles:
Report: Regulators up in arms over proposed approval of Telefónica's E-Plus buy
Telefónica bids over €1B for Spanish pay-TV operator DTS
Germany's anti-trust body raises concerns over Telefónica/E-Plus plan
Moody's: M&A may not bring desired benefits for operators
Telefónica close to gaining approval on E-Plus German bid

Suggested Articles

Qualcomm may finally be moving closer to purchasing NXP. A Beijing official reportedly said the deal is "looking more optimistic now."

Sprint said it will offer discounted service to customers age 55 and above.

Unlimited data plans placed a strain on carrier networks last year, but according to OpenSignal the carriers met the challenge.