As expected, the European Commission approved a merger between the local units of Hutchison and VimpelCom to create Italy’s largest operator.
Key to the approval was the two companies’ commitment to sell assets to newcomer Iliad. The French company inked a contract with Hutch and VimpelCom in July that will see it enter the Italian market.
VimpelCom’s subsidiary, Wind, and Hutchison’s H3G are respectively the third and fourth largest operators in Italy, but their combination will now vault to the top spot.
The two partners evidently decided the benefits of merger outweigh the risks from the entry into the mobile market of Iliad, which has a track record of disruptive pricing.
Indeed, CCS Insight analyst Kester Mann tweeted that “Italian operators need to be better prepared than their French counterparts in 2012”.
And Peter Boyland of IHS Markit went further, stating: “The Italian market represents a great growth opportunity for Iliad. IHS Markit expects the company to be very aggressive in the market, providing price-sensitive offers that will have a mass appeal to cost-conscious consumers in a country still characterised by weak macroeconomic conditions.”
Boyland continued: “Iliad will bring further competitive pressure to the Italian mobile market, which already has some of the lowest ARPU in Western Europe, ahead only of Portugal and Greece. The operator was a late entrant in the French mobile market, becoming the fourth mobile player in 2012, under the Free brand. Despite its late entry Iliad has been very successful in expanding its business.”
In terms of approval, Hutch learnt its lesson from the UK where it attempted to merge its local unit with Telefonica O2 UK, which would have reduced the number of competitors from four to three. The EC blocked the deal. In Italy, the number of operators remains at four.
The UK provided further evidence that EC competition commissioner Margrethe Vestager will tend to block operator mergers which ultimately reduce the number of rivals in a market. In 2015, Telenor and TeliaSonera dropped a plan to merge their businesses in Denmark, faced with scepticism from the Commission.
“This case shows that telecom companies in Europe can grow by consolidation within the same country, provided effective competition is preserved. It also shows they can grow by cross-border expansion, such as Iliad in this case,” said the competition chief.
The new entity is divesting to Iliad some of its spectrum from different frequency bands (900 MHz, 1800 MHz, 2100 MHz and 2600 MHz), as well as sharing or transferring several thousand base station sites and allowing Iliad to use the H3G/Wind infrastructure (2G, 3G and 4G, as well as new technologies) until it has built its own, a similar tactic that Iliad used to break into the French market to disruptive effect.