EU Raises Concern Over Merger of Two Telecom Firms

The $20.3 billion merger of two telecom operators – Orange Spain and MasMovil in Spain – hit a roadblock with the European Union’s Anti-Trust Regulator – EU Competition Commission – raising serious concerns over the deal. Orange, the second largest telecoms provider in Spain, and fourth-ranked MasMovil announced the merger deal in July last year.

However, the two telecom groups have chosen Romanian company Digi, a Romanian telecom firm, to acquire assets that they plan to divest in order to address these concerns. This decision sets an important precedent and will test whether EU regulators will adopt a more lenient approach towards mergers that reduce the number of mobile players in a country.

The EU Competition Commission said in June this year that the proposed transaction may reduce the number of network operators in Spain, thereby eliminating a significant competitive constraint and innovative rival in the Spanish retail markets for mobile telecommunications services, fixed internet services and multiple-play bundles (including fixed mobile convergent ones).

It also held the view that this may lead to significant price increases for affected retail customers across the Spanish market. Predicted anticompetitive effects are substantial even after taking potential cost savings into account, in a context where competition has been a driving force for investment and quality of services in the Spanish market, the Commission said.

Reason for Opting Digi

Digi has been selected as the buyer for the divestment, which is aimed at preserving competition in the Spanish telecoms market and mitigating potential anticompetitive effects.

As part of the deal, Orange and MasMovil will divest “Spectrum,” a customers’ unit, and a brand, while also providing Digi with access to infrastructure. This move aims to address the competition concerns raised by EU regulators and ensure a more balanced market.

Digi’s rapid expansion in the Spanish market since its launch in 2008 has positioned the company as a potential contender for the acquisition of these assets. With over 5.7 million customers as of the first half of 2023, Digi has proven its ability to compete in the Spanish telecoms sector.

Meanwhile, the UK-based investment firm Zegona Communications has confirmed that it was in talks with the UK telecom group Vodafone on a potential acquisition of the carrier’s Spanish business and has also been in contact with investment banks for the financing of the potential deal.

“The potential acquisition remains subject to, amongst other things, agreement on final terms with Vodafone, completion of its due diligence exercise and formalization of the funding arrangements. Therefore, there is no certainty that the potential acquisition will proceed,” the investment firm said.