EC Signs Off Tele2, T-Mobile Merger in Netherlands

Dutch mobile operators Tele2 and T-Mobile Netherlands have secured regulatory approval to merge without having to meet any obligations, in a possible sign that European authorities are relaxing their stance on industry consolidation.

In a statement issued late Tuesday, Tele2 Netherlands Holding NV said the European Commission (EC) had issued an "unconditional approval" for the merger after holding "constructive discussions" with the two operators.

The update came after Reuters reported earlier in the week that Tele2 and T-Mobile Netherlands were set to receive the regulator's blessing. (See Eurobites: Europe Will Remain a 5G Laggard, Says Ericsson Report.)

But the approval marks something of a turnaround for the EC, which had aired major concerns about the proposed deal as recently as September. (See T-Mobile, Tele2 Merger in Netherlands Hits EC Opposition.)

At the time, the EC had complained that any tie-up would reduce competition in the Dutch mobile market and lead to higher prices for consumers. Its objections met with a fierce rebuttal from T-Mobile's parent company, Deutsche Telekom AG (NYSE: DT), which argued that a combined entity would control just a quarter of the country's mobile market.

The German telecom incumbent went on to insist the merger was not a "traditional four-to-three merger" because Tele2 already relied heavily on the T-Mobile network to offer services. It also pointed out that larger rivals KPN Telecom NV (NYSE: KPN) and VodafoneZiggo were then "unchallenged in their ability to raise fixed broadband prices in the Dutch market."

The EC appears to have listened and dropped its former reservations. In today's statement, Tele2 was quick to highlight that a deal was ultimately approved "with no requirement to offer remedies."

That in itself marks a change compared with earlier deals that have secured regulatory approval. Telefónica's German subsidiary was previously allowed to buy local rival E-Plus, for example, only after it agreed to reserve a big chunk of network capacity for a mobile virtual network operator.

Given the go-ahead, Tele2 and T-Mobile now expect to close their transaction at the beginning of January. The combined company will continue to operate the Tele2 brand, but Swedish parent Tele2 AB (Nasdaq: TLTO) will own just 25% of shares and receive a cash payment of €190 million ($215 million) when the deal closes, with Deutsche Telekom holding the other 75%.

In its own statement on the transaction, Deutsche Telekom said the enlarged company would have annual revenues of about €2 billion ($2.3 billion) and serve around 4.3 million postpaid subscribers.

The German operator aims to realize annual cost savings of about €150 million ($169 million) within three years of closing the deal -- a target that seems bound to result in job losses.

"We are committed to continue to disrupt the Dutch telecom market and this transaction will allow us to step up the challenge for KPN and VodafoneZiggo," said Søren Abilgaard, the CEO of T-Mobile Netherlands, in a company statement. "Moreover, we can now start to implement the promises we made, including an accelerated 5G launch, high-speed Internet in rural areas as well as contract freedom for new and existing customers with a combined contract of fixed and mobile services."

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Regulatory approval is bound to be welcomed by analysts who believe that high levels of competition have weakened the European telecom industry.

Bengt Nordström, the CEO of consulting company Northstream, says European regulators have for a long time been too consumer-focused in their policymaking, leaving European markets with too many small players.

"We have consistently invested less [than US operators] in network upgrades over the last five to seven years and have continued to invest less because regulators refuse consolidation of the market," he said during a recent conversation with Light Reading. "The mistake of European policymakers is they don't see the connection between revenues and investment."

If today's EC decision is seen as evidence of a change in regulatory sentiment, it could precipitate renewed consolidation efforts in competitive markets such as France.

— Iain Morris, International Editor, Light Reading