O2 acquisition ‘important test’ of regulatory limits, says Moody’s

European Commission decisions in the coming months on the proposed acquisition of O2 Ireland by Hong Kong-based Hutchison Whampoa and Telefonica's bid for KPN's E-Plus in Germany will be "important tests" of regulatory limits to consolidation within Europe, Moody's Investors Service said yesterday.

“We expect these two deals will be cleared with some remedies, which will primarily include spectrum divestment and mandatory deals with mobile virtual operators or MVNOs,” Moody’s said in a report on in-market consolidation in European telecoms.

Hutchison has agreed to pay €850 million to Spanish telco Telefonica for its O2 Ireland subsidiary. Hutchison intends to merge O2 with its 3 Ireland mobile subsidiary.

In-depth investigation
In November, the European Commission announced that it was undertaking an in-depth investigation of the proposed deal, with a decision likely in April or May, according to Moody's.

The ratings agency believes that approval for the deals in Germany and Ireland could lead to a “wave of further deals in the region, but mainly in large markets with four players, such as Spain, Italy, the UK, France, Poland, the Netherlands, Sweden or Denmark”.

It does not see any likelihood of the Commission approving a merger in a market where there are only three players as this would harm competition.

Ireland currently has four mobile operators – Vodafone, O2, 3 and Meteor.

Moody’s said Vodafone seems to be the only operator with the “scale, strategic determination and financial profile” to affect consolidation between mobile and fixed line operators.

Sizable acquisition
It said Vodafone might have to compete with cable company Liberty Global, which owns UPC in Ireland, for fixed-line assets.

Liberty Global has completed at least one sizable acquisition every year since 2005, representing about $38 billion.

Moody's said there was a "low" probability of Eircom targeting a merger or acquisition due to its "low financial flexibility".

It also found that a lack of synergies would "hamper" cross-border consolidation among telcos in Europe, adding that major players such as Vodafone, Orange Telefonica and KPN were exiting certain markets as there was no track-record of success from cross-border mergers in the region.