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Orange’s $19 Billion Merger with Masmovil Faces EU Merger Watchdog Scrutiny

by Rahil M
0 comment

EU merger watchdogs threaten Orange’s $19 billion bid for Masmovil unless competition concerns are addressed.

Orange SA’s planned $19 billion merger of its Spanish operations with Masmovil Ibercom SA faces potential challenges from European Union (EU) merger regulators unless the companies can address a list of competition concerns. Sources familiar with the matter revealed that the European Commission is preparing to issue a “statement of objections” to Orange and Masmovil, outlining potential reasons for rejecting the merger between Spain’s second and fourth-largest mobile operators. Upon the news, Orange shares experienced a decline of up to 1.6% on Monday.

The “statement of objections” is a standard procedure in complex mergers and will highlight possible solutions to address the identified competition issues. In telecom deals, these remedies typically involve the sale of assets or providing access to ensure interoperability with competitors’ networks. The EU’s mergers watchdog initiated an in-depth investigation in April, expressing concerns that the joint venture could reduce the number of network services for virtual operators.

The European Commission, Orange, and Masmovil have refrained from commenting on the matter. Currently, the commission is set to reach a final decision by September 4, although this timeline could be subject to change. Spain’s competition authority had previously requested the EU to review the merger, but it is rare for national regulators to assess major telecom deals within their own markets.

The EU previously demonstrated its cautious approach to telecom mergers, as evidenced by its veto of CK Hutchinson Holdings Ltd.’s proposed merger of Three with Telefonica SA’s O2 in the UK in 2016. The decision on this case is pending from the EU’s top court, with a ruling expected on July 13.

While the issuance of a statement of objections indicates the EU’s serious concerns about the merger, most merging companies manage to avoid a veto by addressing the identified competition issues. Additionally, companies have the right to challenge the preliminary findings of regulators in writing or through a hearing process.

Spain’s telecom market is known for its competitiveness, with numerous low-cost players driving a price-focused competition. Large operators are required by Spanish law to share their networks at regulated prices, enabling new entrants to establish a presence in the low-end market segment. Consequently, major players like Telefonica and Orange have experienced significant revenue declines, while newcomers have consistently gained market share in recent years. Masmovil, benefiting from remedies obtained through a previous deal involving Orange in 2015, achieved a growth of 17% in 2022. Similarly, Romanian discount operator Digi, which utilizes Telefonica’s network, witnessed a growth of 38% during the same period.

Meanwhile, Spain’s economy ministry recently eased restrictions on the amount of spectrum that each mobile operator can hold, making it more challenging for a fourth strong player to emerge in the market. The regulatory change further impacts the landscape of competition in the Spanish telecommunications sector.

As the merger process unfolds, Orange and Masmovil will need to address the concerns raised by EU regulators and propose suitable remedies to secure approval for their ambitious deal in the competitive Spanish market.

About Orange:

Orange, a prominent telecommunications operator, achieved sales of 43.5 billion euros in 2022, solidifying its position as one of the industry leaders. With a global workforce of 136,000 employees, including 75,000 employees based in France, Orange is dedicated to delivering exceptional services. The company boasts an extensive customer base, serving a total of 287 million customers worldwide. This customer base comprises 242 million mobile customers and 24 million fixed broadband customers. Operating in 26 countries, Orange has established its presence on a global scale. Additionally, under the brand Orange business, the company offers top-notch IT and telecommunication services to multinational corporations, further solidifying its status as a leading provider in the industry.

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