The European Commission on Friday opened an in-depth investigation into Dutch telecom Royal KPN’s agreement to sell its German mobile arm, E-Plus, to Spain’s Telefonica, saying it could violate European merger regulations.
Brussels is concerned the planned acquisition may reduce competition in Europe’s biggest mobile telephony market, the EC said in a statement.
The Commission now has 90 working days - until May 14, 2014 - to conduct a detailed study of the transaction and decide whether or not to approve it.
The EC expressed concerns about the deal’s market impact because it would combine two operators, Telefonica’s O2 and E-Plus, that are now competitors and create a new player similar in size to Germany’s two largest mobile operators, Deutsche Telekom and Vodafone.
The transaction may “remove an important competitive force and change the merged entity’s incentive to exert significant competitive pressure on the remaining competitors,” the Commission said.
Moreover, the EC expressed concern that after the transaction the remaining operators may have less incentive to grant access to their networks to mobile virtual network operators and service providers.
Finally, Brussels noted that if the planned acquisition goes through the operators may be more likely to “coordinate their competitive behavior and increase prices.”
Under the terms of the 8.6-billion-euro ($11.9-billion) deal, Telefonica would pay KPN 5 billion euros in cash and the Dutch company would also take a 20.5 percent stake in the Spanish telco’s German mobile business, which would include E-Plus and O2, Germany’s third- and fourth-biggest mobile operators, respectively.
KPN’s shareholders - headed by Carlos Slim-controlled America Movil, Telefonica’s arch-rival in the Americas - approved the transaction in October.