Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: EC approves acquisition of Jazztel telecommunications company by Orange SA, (May 19, 2015)

By Michael Menzhuber, J.D., LL.M.

The European Commission (EC) has approved, under the European Union (EU) merger regulations, the acquisition of Jazztel plc, a telecommunications company registered in the UK but mainly active in Spain, by Orange SA of France, the EC announced today. Approval of the acquisition is conditioned upon the full implementation by Orange of a number of commitments that will ensure effective competition on the fixed internet access services markets after the takeover.

Background of companies. Orange, a provider of telecommunication services in more than 30 countries, is present in the Spanish telecommunication markets through its wholly-owned Spanish subsidiary, operating under the name of Orange España S.A.U. Jazztel provides telecommunication services in Spain through its subsidiary Jazz Telecom, S.A.U. To provide fixed Internet access services, both Orange and Jazztel mainly rely on regulated direct access to the unbundled local loops of the copper network of the incumbent telecom operator Telefónica. In addition, they deploy their own Fibre-To-The-Home (FTTH) networks in parts of Spain. Orange is also a mobile network operator in Spain and Jazztel provides mobile telecommunications services as a virtual mobile network operator relying on Orange's network.

Proposed acquisition. The proposed acquisition was notified to the EC for regulatory approval on October 16, 2014. The EC had concerns that the acquisition, as originally notified, would have led to increased prices for fixed Internet access services for Spanish customers. The proposed acquisition would bring together the third and the fourth providers of fixed telecommunication services in Spain. They have attracted a higher share of new customers than their market shares would suggest and are the only two nationwide operators that have significantly increased their market shares in recent years. In the absence of effective remedies, the EC was concerned that a merger of these two dynamic players would have significantly reduced competition.

EC investigation. In December of 2014, the EC opened an in-depth investigation, showing that: (1) the merged entity would have had fewer incentives to compete aggressively against the remaining operators; (2) the remaining major competitors—Telefónica and Vodafone—would have been unlikely to replace the competitive pressure formerly exercised by Orange and Jazztel because they would also have stood to benefit from the reduced price pressure; (3) new players would have faced significant difficulties to enter the market due to the high investments needed to enter the retail markets involving fixed internet access services; and (4) end consumers would have no countervailing negotiation power to influence contractual conditions offered by strong providers. The main impact of this reduced level of competition, according to the EC, would have been in the short-term to medium-term in the market segment with speeds up to 30 megabits per second, which represented around 4 out of 5 Internet connections in Spain in 2014.

The EC considered the fact that Orange’s and Jazztel's offers for the provision of mobile telecommunication services are complementary and could lead to efficiencies to reduce the anti-competitive effects of the transaction. However, it concluded that the loss of competition caused by the merger, as initially notified, would still remain significant.

Commitments. In February of 2015, a statement of objections, which set out the EC’s competition concerns, was sent to Orange. In response to the EC’s concerns, Orange submitted commitments based on two technologies. Regarding optical fibre, Orange committed to divest an independent FTTH network, which is similar to the size of Orange's current FTTH network in Spain and covers 13 urban districts located in five of the largest Spanish cities (Madrid, Barcelona, Valencia, Sevilla and Málaga). Orange also committed to grant to the purchaser of the FTTH network wholesale access to its mobile network including 4G services, unless the purchaser already has access to a mobile network. This would be at conditions that are at least as favorable as those Orange currently grants to Jazztel.

The EC determined that these remedies, taken as a whole, would ensure that a fourth nationwide operator can enter the Spanish market and be able to compete effectively in markets involving fixed internet access services. The EC also determined that they address in full the competition concerns raised by the merger on the markets involving fixed internet access services in Spain.

Companies: Jazztel plc; Jazz Telecom, S.A.U.; Orange SA; Orange España S.A.U.

News: AcquisitionsMergers Antitrust