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.

Europe approves merger of Tele2 and Com Hem, Kirkby will move to TDC

The merger of Swedish MNO Tele2 with Swedish cableco Com Hem has been approved but Tele2’s CEO Allison Kirkby isn’t hanging around.

Europe had a look at the merger, as it invariably does with any telecoms M&A on the continent, and concluded it raises no competition concerns. The resulting creation of a multiplay operator doesn’t take any players out of either the mobile or fixed markets and therefore there’s still enough competition to allow the EC to sleep soundly at night. It has also concluded a general investigation into the Swedish telecoms market with not further action required.

“We are nearing the closing of this merger and my ambition to create a leading integrated connectivity provider in the Baltic Sea region will soon be realized,” said Kirkby. “I am immensely proud of the Tele2 team’s efforts throughout this process, as well as our incredible achievements the past years.”

“I will leave a Tele2 that is stronger and better positioned to act as an integrated customer champion in an ever more digitalized world. Once the merger is closed, I feel confident that the Tele2 team, including its new colleagues from Com Hem, will continue to challenge the status quo and fearlessly liberate people to live a more connected life.”

Scandinavia seems to have left a strong impression on Kirkby, who has been poached by Danish telco TDC Group to be its new CEO. Right now TDC seems only to have made the announcement via a Danish press release, but we trust Google Translate enough to run with it. Kirkby will start her new gig in December, right after the merger closes.

The CEO of the merged company, which looks like it will be called Tele2, will be the current CEO of Com Hem, Anders Nilsson. “As one company, we will be able to offer a portfolio of truly integrated services, with significant benefits for Swedish individuals, households, businesses and our shareholders as a result,” he said.

“My main focus now is our preparations for a rapid and efficient integration, to the benefit of both our employees and customers. Together with the new Leadership Team, I will also make sure to draw from the strength, knowledge and spirit of both the Tele2 and Com Hem organizations, as well as the Tele2 Board of Directors. When closing comes, we will be ready to kick off the integration.”

The only other thing worth noting is that Kirkby had been one of the people thought likely to be in the running for the BT CEO job. The search continues.

Tele2 claims eSIM first in partnership with Microsoft

Sweden’s mobile operator Tele2 announced it will collaborate with Microsoft to enable eSIM on Windows 10 based devices.

A Mobile Plans application will be preloaded on Windows 10 devices coming with embedded SIM, eSIM, chips, e.g. laptops or tablets. When activated, users can take their devices out of Wi-Fi or fixed internet environment and remain connected through Tele2’s mobile network.

eSIM, has been controversial when it comes to mobile operator acceptance. This is chiefly down to the fear that the operators feel they will lose control over and the direct relations with their customers as they do now with the physical SIM cards. By definition, eSIM users can switch operators remotely without visiting a retail shop. In this particular case though, because Tele2 is the first operator to offer eSIM service in Sweden, the concern for churn is mitigated, at least until its competitors follow suit.

This deal can bring multiple benefits. For Tele2, this opens a new revenue stream to mobile broadband, in addition to enhancing its reputation as an innovator. However, we believe the offer in its current form is more a symbolic move than substantial business opportunity.

To start with, consumer PC usage is declining, and not many models are being shipped with eSIM capability. (A quick search for eSIM enabled devices on the homepage of Sweden’s leading electronics store Elgiganten does not return many results.) When PCs are being used, they are mainly in indoor environment where more often than not there is already either a Wi-Fi or a fixed connection in place, and, ironically, where cellular coverage is normally inferior.

In outdoor uses cases, which predominantly are for tablets (and much larger number of smartphones), iOS and Android tablets outsell Windows based tablets (Microsoft’s Surface series and a few 2-1 models primarily made by Lenovo) by a big margin, making the addressable market for this deal very limited.

However this will be a useful test for Tele2 to gauge consumer use patterns, before it expands into the more mainstream iOS and Android segments. Maybe more importantly, it will also serve as a testbed of the technology for the more lucrative corporate market, where PCs are still widely used, without frustrating the corporate IT departments with immature products.

For Microsoft, this is a good (re-)entry point to the mobile market, after its ill-fated venture into smartphones through the partnership, then acquisition, of Nokia’s mobile device business.

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.

Rare European telco consolidation as T-Mobile Netherlands moves to acquire Tele2

T-Mobile Netherlands is bidding €190 million plus a quarter of the combined company to buy rival Tele2.

While this is an interesting piece of potential disruption in the Dutch market, the real intrigue lies in the position this puts European competition authorities in. According to Ovum’s WCIS service KPN is the dominant Dutch operator with a 55% subscriber share. Vodafone is second with 22%, then comes T-Mobile with 17% and Tele2 with 5%.

Combining the latter two would still only achieve parity with Vodafone and be miles short of KPN, so it’s hard to see what possible objections there can be to this deal on competition grounds. But Eurocrats have consistently shown themselves to be almost religiously inclined towards maintaining the number of operator players in a given market at four, so they’re left with a bit of a dilemma over this one.

As you would expect T-Mobile is acutely aware of this regulatory dogma and is wasting no time in telling anyone who will listen how uncompetitive the Dutch market is and thus, by extension, what a great idea this acquisition is.

“I would like to congratulate all our customers and all others who are looking for attractive alternatives,” said Søren Abildgaard, CEO of T-Mobile. “This combination means justice for customers. This duo has been getting away with this game for far too long and there was only one victim, namely the customer! No more. No longer. We will be able to compete against the duopoly much more efficiently and give all Dutch customers a fair choice. We are never going to stop breaking down barriers and will continue to challenge this industry in the years to come.”

Abildgaard seems to have been talking to his colleague in the US – John Legere – who has turned bombastic disruption into an art form over in the US, and he’s not the only one. “We’ve started our journey to disrupt the Dutch market and we will be creating a viable and strong attacker of the duopoly KPN and VodafoneZiggo.” said Thorsten Langheim, Head of the Group Development segment of Deutsche Telekom overseeing T-Mobile NL.

“This is a fantastic opportunity to speed up development of the Dutch telco market and to spur effective competition to the benefit of the Dutch population,” said Allison Kirkby, President and CEO of Tele2 AB. “I see this as a logical next step to become part of a stronger number three player that will benefit our customers, our shareholders and our employees.”

T-Mobile is hoping this deal will close on the second half of next year, but that seems optimistic on two counts. The first is the strong possibility that Europe will just say ‘four good, three bad’ and then stick it’s fingers in its ears. The second is that it will take a year just to start mulling the whole thing over because massive, publicly-funded lunches don’t eat themselves. Let’s see.