The European Commission (EC) has never before sent a formal “Statement of Objections” alleging a company breached the commitments it made to get an acquisition through under EU Merger Regulations: until now.
Today a furious Commission warned Spain’s Telefónica it faced a fine of up to 10 percent of its annual global turnover and having its acquisition of German mobile telecoms business E-Plus overturned.
Competition Commissioner Margrethe Vestager said: “Commitments from the parties in merger decisions are crucial to ensure that effective competition is maintained after a merger or takeover, so that there is no harm to consumers.”
“We need full compliance and take very seriously any case where companies may have failed to comply with their commitments, which is why we have sent today’s statement of objections.”
Here’s what happened.
What Does the Commission Allege?
On 2 July 2014, following an in-depth investigation, the EC approved the buyout of E-Plus, the German mobile telecoms business of Dutch Telecom operator KPN, by Telefónica Deutschland, a subsidiary of Telefónica, head-quartered in Spain.
The Commission cleared the acquisition “subject to full compliance with commitments submitted by Telefónica” intended to ensure that the mobile telecommunications market in Germany remained a competitive one.
To get the deal through, Telefónica made three commitments.
Telefónica’s Three Promises
1) To sell 30 percent of the merged company’s network capacity to Mobile Virtual Network Operators (MVNOs) in Germany at fixed prices.
2) To divest radio wave spectrum either to a new network operator or to virtual operators adopting network capacity thanks to promise #1.
3) To extend existing wholesale agreements with Telefónica’s and E-Plus’ wholesale partners and to offer wholesale 4G services to all interested players at “best prices”, and improve wholesale partners’ ability to switch customers from one MNO to another.
The Statement of Objections issued by the Commission today relates to the third commitment, specifically “Telefónica’s obligation to offer wholesale 4G services to all interested players at “best prices under benchmark conditions”.
The company hasn’t lived up to these promises and “as a result of Telefónica’s conduct, the ability of third parties to compete in the German market for mobile communication services was reduced”, an EC notice shared today said.
“If the Commission were to conclude that Telefónica did not respect a commitment that was part of the clearance decision approving its acquisition of E-Plus, it could impose a fine of up to 10% of Telefónica Deutschland’s annual worldwide turnover and/or revoke the decision” it noted.
Telefónica has until April 5 to respond.
Computer Business Review has contacted the company by phone and email and will update with any response.
The EC has fired out Statements of Objections before (albeit none alleging the reneging of promises made to secure a deal). In July 2017, the Commission sent three separate Statements of Objections to Merck and Sigma-Aldrich, General Electric and Canonalleging they breached EU merger rules: to General Electric and to Merck and Sigma-Aldrich for allegedly providing incorrect or misleading information, and to Canon for allegedly implementing a merger before notification and clearance.
The investigations are ongoing. In April 2018, the EC also imposed a €124.5 million fine on Altice, the multinational cable and telecommunications company based in the Netherlands, for implementing its acquisition of the Portuguese telecommunications operator PT Portugal before notification or approval by the Commission.