T-Mobile’s Tele2 acquisition is not a sign of changing attitudes from Europe – Lawyer

While some might view European Commission’s decision for T-Mobile Netherlands acquisition of Tele2’s Dutch business as a softening approach to consolidation, White & Case, one of the law firms working on the deal, warned you shouldn’t get too excited.

With the European Commission historically taking an aggressive view against any acquisition which would take a market from four to three operators, T-Mobile Netherlands acquisition of Tele2 Netherlands looked doomed to failure. However, the European Commission has always stated there is no magic number, and each case would be considered on its own merit. Despite this stance, many believed the Commission secretly held the number four as sacred.

“Looking in the rear-view mirror, you could see that the tone seemed to have gotten harsher in terms of the Commission’s approach to four to three operators,” said Mark Powell, one of White & Case’s Partners who co-led the legal team on the deal.

Unfortunately for the European Commission’s claim of impartiality on market consolidation, the evidence has been stacked against it. In Austria, Ireland and Germany, consolidation was approved though there were increasingly stricter MVNO remedies placed on the deal. In Denmark, Telenor and TeliaSonera ditched their own deal just as the European Commission was set to block it. It did have to intervene in the UK with Three and O2, while in Italy consolidation was approved under the condition spectrum was released to create a fourth player, resulting in Iliad’s entry. As time progressed, the attitude towards consolidation seemed to become more vehemently opposed.

With this in mind, the approval of the deal in the Netherlands might have come as a surprise.

“Things are very different in this case,” said Powell. “If the Commission was prepared to look at the very specific conditions, we felt we would have a favourable decision.”

However, what telcos around Europe should bear in mind is the Netherlands is a unique market. This should not be taken as changing attitudes of the European Commission, or a new era where a free-for-all consolidation battle begins. So what were the favourable conditions in the Netherlands?

Firstly, the combined market share of the newly merged business would only be 25%, keeping it in third place. Tele2’s Dutch business was a relatively minor player, only controlling around 5% market share, but is also a pureplay 4G telco. The Commission did not have to worry about 2G or 3G. Another consideration is the aggressive MVNO segment in the country, perhaps compensating for any reduction in competition.

“You could say common sense prevailed, but the fact pattern was recognised by the Commission, so they should be credited for standing by what they say when they said they would look at specific cases and make a decision accordingly,” said Powell.

Another underlying point for the successful merger was the attitude of the regulator. The Dutch regulator was generally receptive to the idea of consolidation, which was perhaps taken into consideration by the Commission. In many of the cases which have gone against consolidation, the regulator has been against the deal. This was certainly the case in the UK Three/O2 merger, where the UK watchdog was publicly hostile to consolidation, as Powell put it.

The final point which Powell believes contributed to the success was the fact the case was heard verbally in court over the course of a single day. These are scenarios which are very fact intensive, resulting in a lot of paper. Simple sending opinions and evidence back and forth creates a mountain of information, perhaps confusing and convoluting opinions. By hearing the case verbally, the court was able to consider and crystallise a decision more effectively.

“At the end of the day, this confirms that if you think you have a strong case, then there is,” said Powell.

This is what should be taken away from this deal. This is not a changing of policy from the European Commission, but conveniently proving it will consider market consolidation in the right circumstances. There isn’t another market in Europe which mirrors the conditions here, but there are markets which could be successful in the same way T-Mobile Netherlands has been here in acquiring Tele2 Netherlands.

Interestingly enough, 5G did not factor into the equation much here. The Dutch 5G auction has not taken place yet, therefore the European Commission was taking into consideration the evidence which was put in front of it. Whether market consolidation is necessary in the 5G world still remains a valid question, and this decision should not be viewed as evidence for either side.

5G will require huge investment by the telcos, significantly more than previous generations, though how to ensure these investments are made in a timely fashion is an interesting question. Should consolidation be preventing to encourage competition and the fear of another eating a telcos lunch, or should it be allowed to ensure scale of customers and confidence in ROI? The debate rages on with pros and cons on either side.

While Powell warned against believing this is a sign the European Commission is softening its approach to market consolidation, it is evidence it can stick to its word that there is no magic number to make competition work.

Netherlands falls to three MNOs as Europe approves T-Mobile/Tele2 deal

The European Commission has officially approved Deutsche Telekom’s acquisition of Tele2’s Dutch business, reducing the number of MNOs in the country from four to three.

For many through the continent this will be seen as progress, as the European Commission has previously viewed reducing the number of MNOs in a single market below four as sacrilege. With telcos across Europe looking for ways to justify the vast expenditures expected for 5G and the full-fibre diets demanding by governments in the fixed space, the prospect of market consolidation is an interesting one.

What is worth noting is this is a relatively minor acquisition. Merging DT’s Dutch business and Tele2’s only adds a relatively small increment, roughly 5%, to the newly merged business. T-Mobile NL would still remain in third position with a market share of 25%, while the European Commission has also questioned Tele2 NL’s role as an important competitive force in the Dutch market. Despite these conditions, this will certainly be viewed as progress for those who sit in the pro-consolidation camp.

“Access to affordable and good quality mobile telecom services is essential in a modern society,” said Commissioner Margrethe Vestager. “After thoroughly analysing the specific role of T-Mobile NL and the smaller Tele2 NL in the Dutch retail mobile market, our investigation found that the proposed acquisition would not significantly change the prices or quality of mobile services for Dutch consumers.”

Through the five month investigation, Vestager and her team decided the proposed merger was unlikely to lead to significant price increases due to the limited incremental impact Tele2 would have on the T-Mobile NL business, the transaction would not increase the likelihood of coordinated behaviour between mobile network operators as there is sufficient enough difference between and the business models, and finally, conditions for virtual mobile network operators due to the proposed merger would not have a serious impact on the level of competition. In short, dropping from four to three operators would not negatively impact the consumer.

Here is the question though; will this decision have any material impact on consolidation decisions elsewhere? Perhaps it might, but we suspect the European Commission will stick to the three operator rule where competition is more intense.

In listing its reasons for approving the deal, Vestager effectively said that Tele2’s Dutch business was small and irrelevant enough to the other players that it being swallowed up by one of them would not make any material impact on competition. In most other markets around Europe the fourth players have much more of a foothold in the market.

Take the UK for instance. Here, Three is the smallest of the MNOs, controlling roughly a 15% market share. On its own it can provide suitable competition to the three larger players, though if it was acquired the gain in total subscribers would have a material impact on market share. This alteration in the status quo could lead to the anti-competition doomsday scenario, or at least this is what the European Commission might believe.

Despite consolidation being a positive for the industry, scale means confidence to invest, operational efficiencies, notable procurement benefits and greater ability to generate ROI, we suspect the European Commission will stick to its four operator rule for most markets. The only exceptions will be in cases like this one, where the fourth player controls a minor market share which would have no material impact on a competitors standing in the market.

That said, this is a step forward for the stubborn European Commission.

DT/Tele2 tie up could smooth path to industry consolidation

For years the telco industry has condemned the EU’s approach to competition, though green-lighting DT’s acquisition of Tele2’s Dutch business could indicate a loosening grip on the idea of four operators.

According to the European Commission, each market should ideally have four operators to ensure the consumer has choice, though this has been challenged in recent years due to market economics. In short, the telcos do not feel they are making enough money to continue network investments and challenge the OTTs in capturing the digital economy fortunes. One way to balance the equation is consolidation, but regulators have consistently resisted. This might be changed according to reports in Reuters.

DT has been attempting to swallow up Tele2’s Dutch business to create a more competitive threat to the number one and two in the market, KPN and VodafoneZiggo. However, such an acquisition would decrease the number of national telcos from four to three, sacrilege in the eyes of the Brussels bureaucrats, though this vice-like persistence with four telcos might be loosening.

The decision is due on November 30, though rumours are circulating that a decision has been made and it will be in favour of the Germans. DT’s argument has been combined company would only have a 25% market share, still a way off KPN and VodafoneZiggo, therefore it would still have to challenge on price, and it seems the European Commission is buying the stance.

For rest of the telcos around Europe, executives are bound to be eagerly awaiting the official decision. Precedent is everything when it comes to regulations, competition and acquisitions. Merging these two players will give lawyers something to point to and ammunition to fight for market consolidation.

This has been a bugbear of the European telcos for some time; scale means investment. The larger the subscription bases of the telcos, the safer they will feel in terms of splashing the cash and upgrading networks. It might of course be nothing but a rouse to make more money and realise operational efficiencies, but when you look at the size of telcos on other continents you can see the argument; European telcos simply cannot compete with those in North America or Asia.

Of course what is worth noting is this is nothing more than a report for the moment. The official decision will emerge over the next few days, though the telco industry might finally be getting some ammunition to fight back against the OTTs.

T-Mobile US and Sprint finally get some support for merger

Budget MVNO Ting Mobile has come out in support of the proposed T-Mobile US and Sprint merger, standing pretty lonely opposite the waves of opposition.

In a letter to the FCC, Elliott Noss, CEO of parent company Tucows, has penned his support for the merger. While there certainly will be support for the transaction outside of the T-Mobile US and Sprint offices, Noss is creating a pretty lonely silhouette at the moment.

“In a general sense, we think the T-Mobile/Sprint merger makes strong business sense and will generally benefit most stakeholders,” Noss states. “For greater clarity, we view the group of stakeholders as customers, employees and investors, in that order.

“We believe customers will benefit from a more efficient, profitable company which will allow greater investment in building the current Sprint spectrum in particular. We are uncertain whether customers will benefit from lower prices as we have seen in Canada (with the most expensive mobile phone service in the world) that three competitors and no MVNO presence in the market leads to clear oligopolistic pricing and a minimum of competitive pricing pressures.”

While the queue opposing the merger has been growing over the last few days, T-Mobile US has apparently been lobbying MVNOs and customers to build its own legion of support. There there have been few public statements so far, this might well be the first, and although Tucows is not a massive player, having an established business will count for something.

For those who are not aware of Tucows and its Ting Mobile brand, the organization operates out of Ontario in Canada and Mississippi in the US, using both Sprint and T-Mobile US’ networks. The firm generated revenues of $81 million for the quarter ending August 8, with a net income of $3.6 million. This quarter demonstrated a 4% decline in revenues, though the firm is up 15% year-on-year for the first six months.

The general message here seems to be one which contradicts that of the bigger telco boys; light-touch regulation is the way forward and this merger will benefit US consumers and businesses.

Looking at the opposition, the Communications Workers of America (CWA) union, satellite operator Dish and MVNO Altice USA were the latest to join. Dish and Altice USA have both stated the merger would make them reconsider entering the mobile race in the US, though Tucows clearly believes this is a lot of hot air. The merger would not prevent it from succeeding in the future.

“We had chosen Sprint and T-Mobile as our service providers originally for a variety of reasons, including price, device compatibility, territorial coverage, protocol coverage (CDMA and GSM), and MVNO-friendly policies and practices,” Noss states. “These factors were not the same for both companies. In some cases, Sprint is stronger than T-Mobile. In other cases, T-Mobile has advantages. Mostly, we chose to add T-Mobile as a second network in 2014 in order to have diversity of supply and to have some leverage with our suppliers in hopes of balancing an unequal bargaining position.

“In combination, a new Sprint/T-Mobile entity should continue to provide diverse support for geography, protocols, and device support. Sprint and T-Mobile, however, have different approaches to pricing and MVNO policies and support generally, and they have not announced which practices will prevail in a post-merger company.”

Noss believes a healthy MVNO sector can compensate for reduced competition as a result of the merger, and this ecosystem should be given more attention by the FCC. Neglecting the MVNO market would create the same sticky situation Canadians are facing in terms of competition, which would have more of a negative impact that the combination of Sprint and T-Mobile.

This is an opportunity for Noss to have a moan at regulators for neglecting the MVNO market to date, most notably the adoption of eSIMs, however it is fundamentally in support of the merger. Tucows might be a minnow on the US telco scene, but should the T-Mobile US lobbying efforts work, enough support from the MVNOs will have to be taken into consideration. Could this be the first of many…

CWA, Dish and Altice USA join the T-Mobile/Sprint opposition

With conflicting predictions on the outcome of the industry’s biggest will-they/won’t-they flying everywhere, opposition to the deal from a communications union, Dish and Altice has started to scrap for attention.

The Communications Workers of America (CWA) union, satellite operator Dish and MVNO Altice USA have all aired their grievances, as the industry seemingly turns against the prospects of reducing competition across the US. While we suspect politically-minded individuals actually care very little regarding the concerns of Joe Bloggs, enough resistance from corporations could certainly have an impact on the decision making process.

Mergers of this nature are particularly sensitive to authorities due to the direct impact on competition. The difficulty is focused around the idea of ‘public interest’, a loosely defined term which underpins opinion in a huge number of legal cases in the US. Unfortunately for the US and its citizens, the definition of ‘public interest’ can depend on numerous factors and is rarely 100% consistent.

Looking at the opposition raised in recent days, the focus seems to be around three themes; competition, national security and jobs. Competition is the main focus here, so will get the lion’s share of attention.

When looking to raise support for the transaction, T-Mobile and Sprint executives have pointed towards the idea of consolidated networks and more efficient supply chains to bridge the gap created by AT&T and Verizon at the top of the communications rankings. According to Dish and the CWA, this is nothing more than hot air, as neither organization needs the merger as a means to provide 5G services or could not exist without the deal. As 5G services would be brought without the proposed tie-up, the public interest aspect is questioned as why would it be logical to remove a fourth player.

Another interesting point is the spectrum screen. The FCC gets very fidgety when one telco controls more than 33% of available spectrum in a given region, though should the deal go through, this would be the case across 66% of the US, a landmass which acts as home to 92% of US citizens according to the CWA. Altice USA believes one of the conditions of the deal should be the divestment of spectrum which exceeds the screen, as well as the associated network infrastructure, to improve opportunities for MVNOs and smaller telcos.

But perhaps the most important assertion here is the prevention of competition. Dish has stated the tie up would possible prevent it entering the wireless market with its own offering, while Altice USA has expressed concerns over whether the new organization would honour its own MVNO agreement with Sprint. Altice USA has said it is on track to launch an offering in 2019, though there have been no guarantees its ability to compete would not impaired by the transaction.

Predictions on whether reducing the number of wireless operators from four to three vary quite considerably, though there will certainly be concern if MVNOs start rowing backwards due to the deal. Taking Sprint out of the equation is one problem, but MVNOs disappearing will have another painful impact on competition.

Dish argues customisation of radios, chipsets and devices by the new organization would prevent it from entering the 5G mobile voice/broadband market, or at the very least delay it. Altice USA has pointed to comments from T-Mobile US CEO John Legere, which it believes demonstrates hostility towards MVNOs. Finally, the CWA has suggested the removal of head-to-head competition between the pair would be detrimental, while each has a viable future in the 5G world as a standalone business.

Looking at the other arguments, there seem to be less credibility. On the jobs front, the CWA predicts under the proposed terms of the transaction, 28,000 jobs would be sacrificed. 12,600 would be in the postpaid business, 11,800 in the prepaid and 4,500 in head office roles. As with any merger, there will certainly be crossover and therefore redundancies, though considering the combined workforce of the two organizations is in the region of 80,000-90,000, we can’t imagine redundancies will be as high as 33%.

In terms of national security, the CWA suggests Softbank is too close to Huawei and ZTE. The union quotes Sprint executives, claiming they have praised the technology of the two vendors, though this is hardly a surprise; many telcos around the world have paid compliments to Huawei in particular for the excellence of products, customisation and account management capabilities. Huawei is the market leader for communications infrastructure for a reason.

The national security argument seems to be nothing more than a shallow attempt to rile paranoid politicians who already have a Chinese bee in their bonnet. The link appears to be a smear attempt, attributing comments which are far from uncommon to a single business. It is an underhanded move and undermines the credibility, assuming it has much, of the union.

Although we do not see much substance to the employment and national security arguments, the competition concerns from all three are somewhat justified. Authorities will certainly have some alternative ideas to consider and it tough to see how this merger will be approved within the 90-day targeted window.

GSMA has a pop at BEREC over Euro MNO merger study

Mobile industry lobby group GSMA is unconvinced by findings from Euro telecoms regulator BEREC about the effects of consolidation.

A persistent theme in the European mobile market is the desire for consolidation. The European Commission has regularly blocked such attempts, apparently viewing four as the optimal number to ensure healthy competition. The counter-argument put forward by operators is that consolidation creates efficiencies and economies of scale that allow for greater investment, etc.

One of the organisations the EC apparently looks to for guidance on such matters is BEREC (Body of European Regulators for Electronic Communications), which recently published a report entitled ‘Post-Merger Market Developments – Price Effects of Mobile Mergers in Austria, Ireland and Germany’.

While there were few concrete conclusions the report seemed inclined against 4 to 3 mergers on competition grounds. “In all of the three cases considered, there is at least some evidence that retail prices for new customers increased due to the merger compared to the situation without the merger (the counterfactual),” it said in its conclusion.

The GSMA isn’t convinced and thinks BEREC failed to provide sufficient evidence to support this claim. Regarding price it picks holes in BEREC’s choice of data from Austria, reckons the Irish data used doesn’t support the claim at all and says most of the German data is ‘not very robust’, which seems like a polite way of saying ‘dodgy’.

BEREC also directly criticised the GSMA’s own study of the effects of the Hutchison/Orange merger in Austria, specifically the methodology and data used and the positive conclusions made about its effect on network quality. The GSMA predictably pushed back on that, saying its findings don’t stand up to [the GSMA’s] scrutiny.

“In summary, the BEREC report does not add any significant finding to the existing body of evidence on the impact of mergers,” concludes the GSMA press release. “It fails to convincingly dismiss past evidence on the positive impact of recent mergers, while not providing a convincing picture of higher prices for consumers in Austria, Ireland and Germany.”

BEREC hasn’t issued any public response but if it did, it would probably be something like “It’s not our methodology that’s rubbish – it’s the GSMA’s. And no returns.”

AT&T wastes no time in completing Time Warner acquisition

A mere two days after a judge rejected the US government’s attempt to block it, AT&T has completed its $85.4 billion acquisition of Time Warner.

The giant US telco is now the owner of some of the biggest properties and brands in the media world. HBO is arguably the number one producer of premium video content, responsible for Game of Thrones and Westworld as well as all-time classics The Wire and The Sopranos. Turner owns a bunch of major broadcast TV channels including CNN and Cartoon Network, while Warner Brothers is one of the big movie studios.

“The content and creative talent at Warner Bros., HBO and Turner are first-rate,” said AT&T CEO Randall Stephenson. “Combine all that with AT&T’s strengths in direct-to-consumer distribution, and we offer customers a differentiated, high-quality, mobile-first entertainment experience. We’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.”

The strapline for the press release announcing the completion of the deal announces: “Positioned to be a Global Leader as a Modern Media Company. Set to Create the Best Entertainment and Communications Experiences in the World.” This chimes with the contemporary trend towards mutliplay and sets AT&T up as the big beast of this space.

The Time Warner name, which can be traced back to the launch of Time magazine in 1923, will now cease to exist. AT&T is adding a new super-silo to its corporate structure to accommodate these new media assets, alongside its communications, international and advertising business, but has yet to pick a name for it. You would presumably get short odds on ‘AT&T Media’.

That silo will be led by AT&T lifer John Stankey, who took over the AT&T Entertainment Group that was created to house DirecTV when it was snapped up for $50 billion or so in 2015. He’s going to get a crash course in running a media empire from former Time Warner CEO Jeff Bewkes during a transition period of unspecified length.

“Jeff is an outstanding leader and one of the most accomplished CEOs around,” said Stephenson. He and his team have built a global leader in media and entertainment and I greatly appreciate his continued counsel.”

There are only two larger media companies out there: Comcast and Disney, who are currently in a bidding war for Twenty-First Century Fox, with the former outbidding the latter to the tune of 19% earlier this week by offering $65 billion, apparently hastened by the AT&T development. Fox, meanwhile has trying to buy Sky for ages, a process also complicated by Comcast’s gazumping tendencies.

The US seems to be feeling pretty laissez faire about massive comms/media consolidation but Europe might yet have something to say about all this. The Fox/Sky acquisition has been mainly held up by concerns about media plurality in terms of TV news and the more of this sort of M&A happens the more questions like these will be asked.

The T-Mobile and Sprint love affair may be back on

The will-they/won’t-they flirting between T-Mobile US and Sprint is seemingly back on as the pair head back to the negotiating table for the third time in four years.

The restarted merger talks were originally reported by the Wall Street Journal, though the news has been very positively received by the market. Sprint share price is up over 17%, at the time of writing, while T-Mobile US has increased by 5.5%. The market is clearly excited about such a merger, though it does appear Sprint might need the deal more than T-Mobile US.

Of course it would not be advisable to get too excited just yet, as we’ve been down this path before. Last year the pair were discussing the tie up, only for egos to get in the way as there was no agreement on who would have the controlling voice of the merged entity, while in 2014, regulatory issues killed the deal.

These are still preliminary talks and there is plenty which can go wrong. Little has in the top of the management teams involved, so why anyone thinks the control hurdle has disappeared after only five months is a bit of a mystery. Another factor which might be worth considering is the current administrations seeming opposition to major M&A. The AT&T/Time Warner deal is hanging in the balance, while President Trump killed off the idea of Broadcom acquiring Qualcomm. Reducing competition in the wireless market with the merger of the third and fourth players might not be well received in the current climate.

To remain relevant in the next era of the communications world, something needs to change. T-Mobile US is putting itself in a handy position, but taking the next step to compete with AT&T and Verizon on a level playing field might make the Sprint merger a necessity. A combined business would have just over 120 million customers, just ahead of AT&T but still behind Verizon.

Sprint looks like a business which needs T-Mobile US as well. Excluding the bump experienced over the last 24 hours, share price is down over 40% over the last 12 months as people question how the telco can compete with the top three players. The network is not as good, customer numbers are declining, customer service is deemed poor and the mountain of debt is incredible.

Who needs who more is partly irrelevant, as they both need each other to make a play for the 5G world. A combination of the two networks would offer substantial benefits in terms of consolidated investment strategies, which neither team would say no to. Maybe this is a case of third time lucky?

Multiplay time in Sweden as Tele2 buys Com Hem for $3.3 billion

The global trend towards consolation across telecoms, and content has reached Sweden with the acquisition of cable player Com Hem by operator group Tele2 for $3.3 billion.

The general theory behind multiplay is for a company to try to become a one-stop-shop for all a customer’s communications needs, which includes the internet and content streamed from it. Despite the fact that many big bets on content from the likes of BT have yet to deliver much return, operators don’t seem to have a plan B so are still doubling down on consolidation.

There’s a whole bunch of detail about the structure of the acquisition, who gets what equity, etc, but frankly it’s just too boring to detail. The price premium paid is only around 12% and the resulting company will be run by current Com Hem CEO Anders Nilsson, with Tele2 CEO Allison Kirkby calling it a day.

“We are delighted to have reached agreement to combine two great Nordic companies to create a leading integrated connectivity provider in the Swedish market,” said Tele2 Chairman Mike Parton. “Allison Kirkby has led Tele2 through a challenging period with great energy and commitment. We as a Board would like to thank her for everything she has done for the Tele2 group and especially for her pivotal role in laying solid foundations from which Enlarged Tele2 can prosper.

“In this exciting new chapter for Tele2, the Board would like to welcome Anders Nilsson as the incoming CEO at completion. His broad and deep operational experience in the Nordic media and connectivity market makes him extremely well suited to lead Tele2 to drive integration and delivery of the significant value creation potential that this transaction enables.”

“Merging is the best possible next step for both companies as it will enable us to meet the demands of tomorrow and unleash the power for the best possible digital quality of life in Sweden,” said Nilsson. “The combined company will be very well-positioned for the future to meet the expectations of our shareholders, customers and employees.”

“Enlarged Tele2 will be able to provide a wide range of complementary connectivity and digital services; a base that makes us well positioned to act as a customer champion in an increasingly integrated world,” said Kirkby. “I am confident that, at completion, I will hand over a company in very good shape and with Anders Nilsson and the current Tele2 management team leading the organization, it is in great hands to be even more successful going forward.”

There you have it. The driver of this deal is investment company Kinnevik and the underlying strategy is to make the most effective competitor for Telia. For the benefit of other investors the companies have to tick various boxes such as synergy and scale but at the end of the day prevailing sentiment in telecoms seems to be consolidate or die.