Mergers & acquisitions

European Commission Digs Into Vodafone-Liberty Global Deal

The European Commission has opened an "in-depth investigation" to assess the potential competitive implications posed by the proposed sale of Liberty Global assets in Germany, the Czech Republic, Hungary and Romania to Vodafone.

The "Phase II" probe, announced Tuesday and coming on the heels of issues raised by Deutsche Telekom AG (NYSE: DT), emerges amid concerns that the "takeover may reduce competition in Germany and Czechia," the European Commission said, noting that the investigation will assess whether the deal could lead to higher prices, less choice and "reduced innovation" with respect to telecom and TV services for consumers. (See Vodafone Strikes €18.4B Deal to Buy Liberty Assets and Liberty Global: A Tale of Two Companies?)

In Germany, Vodafone and Liberty Global operate non-overlapping HFC networks in different areas and regions. Vodafone is also active in areas where Liberty Global offers cable services (via wholesale access) to Deutsche Telekom's DSL network.

For now, the EC said it has not identified any specific reasons to fret about competition related to the proposed deal's impact in Hungary and Romania. The Commission listed out its "preliminary" concerns for Czechia and Germany:

  • In Czechia, providers of standalone telecom services could be shut out from the retail market for mobile services, the retail market for Internet service and the retail market for TV services due in part to the "converged products" that the merged company could offer, the EC said.

  • In Germany, Vodafone and Unitymedia (a subsidiary of Liberty Global's in that country) currently compete in Unitymedia service areas. But the EC is worried that the deal will reduce the number of players there and reduce the merged entity's incentives to compete effectively against the remaining competition.

  • By reducing competition, the merging companies might negatively impact investments in next-gen networks.

  • The deal could "substantially increase" the bargaining power of the new, larger Vodafone with TV broadcasters, and therefore harm the broadcasters' ability to compete and invest, the EC noted.

    For its part, Vodafone has been moving ahead with a next-gen, cloud-powered multiscreen pay-TV product that it intends to scale across properties in Europe and parts of the Asia Pacific. (See The Cloud Sets Clear Vision for Vodafone's TV Strategy and Vodafone's Sanches on Cloud TV.)

    In a statement, Liberty Global Inc. (Nasdaq: LBTY) CEO Mike Fries called the Phase II announcement "welcome and expected news," and still expects the deal to gain approval by mid-2019.

    He added: "We always anticipated a second phase review given the size and scope of the transaction, and it is clear that the EU is retaining regulatory authority over the case. This provides us with the appropriate forum to demonstrate the consumer benefits that will be delivered by the creation of fully converged, fixed-mobile operators in these four markets."

    Fries expressed similar confidence last week at an investors conference when asked about recent reports that the EC was gearing up to launch the in-depth investigation. "There will be theories of harm, and we'll have to respond to those theories of harm," he said. (See European Cable Has Reached 'Inflection Point,' Liberty Global CEO Says.)

    Fries also held that the proposed divestitures will enable Liberty Global to focus on parts of Europe where it has scale and is positioned to be a "national challenger" -- the UK, Belgium, Switzerland and Holland.

    — Jeff Baumgartner, Senior Editor, Light Reading

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