Summary of Commission Decision of 20 February 2024 declaring a concentration compatible with the internal market and the functioning of the EEA Agreement (Case M.10896 – ORANGE / MÁSMOVIL / JV) (notified under document number C(2024) 1161)
Date: 2024-02-20
Institutions: Directorate-General for Competition, European Commission
Subjects: Spain, economic concentration, holding company, joint venture, merger control, provision of services, telecommunications








C_202404549EN.000101.fmx.xml












Official Journal of the European Union


EN
C series













C/2024/4549


19.7.2024






Summary of Commission Decision
of 20 February 2024
         
declaring a concentration compatible with the internal market and the functioning of the EEA Agreement
(Case M.10896 – ORANGE / MÁSMOVIL / JV)


(notified under document number C(2024) 1161)


(only the English version is authentic)
(C/2024/4549)


On 20 February 2024 the Commission adopted a Decision in a merger case under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings
          (1)
, and in particular Article 8(2) of that Regulation. A non-confidential version of the full Decision, can be found in English on the website of the Directorate-General for Competition, at the following address: https://competition-cases.ec.europa.eu/search.

1.   INTRODUCTION









(1)


The attached draft Decision declares the acquisition of joint control over a newly formed full-function joint venture (the ‘JV’) by Orange S.A. (‘Orange’, France) and Lorca JVCo Limited (‘Lorca’, UK), to which the businesses of Orange Espagne S.A.U (‘OSP’, Spain) and MásMóvil Ibercom S.A.U. (‘MásMóvil’, Spain) will be transferred, compatible with the internal market and the functioning of the EEA Agreement, subject to full compliance with the undertakings submitted by Orange and MásMóvil, in accordance with Article 2(2) and Article 8(2) of Council Regulation (EC) No 139/2004 (the ‘Merger Regulation’) and Article 57 of the EEA Agreement. Orange and MásMóvil will be referred to as the ‘Parties’.




2.   THE PARTIES









(2)


Orange is a French global telecommunications operator present in the Spanish telecommunications market through its subsidiary OSP. OSP provides mobile and fixed telecommunication services to residential customers, business customers and wholesale customers in Spain. It operates under three brands: Orange, Jazztel, and Simyo.












(3)


Lorca is a holding company controlling MásMóvil. MásMóvil provides fixed and mobile telecommunications services mainly to residential customers in Spain. It operates under a wide variety of brands, such as Yoigo, MásMóvil and Virgin, as well as digital-focused brand Pepephone, regional brands Euskaltel, R., Guuk, Embou and Telecable and international customers brands Llamaya, Lebara, Lycamobile.












(4)


The newly founded JV will combine the mobile and fixed telecommunication businesses of OSP and MásMóvil. Orange will retain some business activities in Spain, which will not be contributed to the JV, in particular TOTEM TowerCo, a mobile passive infrastructure operator (2).




3.   THE PROCEDURE









(5)


On 13 February 2023, the European Commission (‘Commission’) received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which the Parties will acquire, within the meaning of Article 3(1)(b) and 3(4) of the Merger Regulation joint control of the JV (the ‘Transaction’) (3).












(6)


After a preliminary examination of the notification and based on the first phase market investigation, the Commission raised serious doubts as to the compatibility of the Transaction with the internal market and adopted a decision to initiate proceedings pursuant to Article 6(1)(c) of the Merger Regulation on 3 April 2023 (the ‘Article 6(1)(c) Decision’) (4).












(7)


On 20 April 2023, the Parties submitted its written comments to the Article 6(1)(c) Decision.












(8)


On 28 April 2023, the second phase investigation period was extended by 10 working days at the request of the Parties pursuant to the first sentence of the second subparagraph of Article 10(3) of the Merger Regulation.












(9)


On 26 June 2023, the Commission issued a Statement of Objections to the Parties.












(10)


On 10 July 2023, the Parties provided a written response to the Commission’s Statement of Objections.












(11)


On 27 July 2023, the Commission adopted a decision pursuant to Article 11(3) of the Merger Regulation, addressed to the Parties requesting further information to carry out the necessary assessment on the remedies, following receipt of a letter signed by the Parties and Digi Spain outlining ongoing negotiations on potential commitments. This Decision suspended the time limit referred to in Article 10(3) of the Merger Regulation. The Parties complied with the Article 11(3) Decision on 11 December 2023. Therefore, pursuant to Article 10(4) of the Merger Regulation, the suspension of the time limits expired at the end of 11 December 2023.












(12)


On 12 December 2023, the Parties submitted commitments (the ‘Commitments’) pursuant to Article 8(2) second subparagraph of the Merger Regulation to address the competition concerns identified by the Commission. Accordingly, the legal deadline for the Commission decision was automatically extended by 15 working days, pursuant to Article 10(3) first subparagraph of the Merger Regulation.












(13)


On 12 December 2023, the Commission launched a market test of the Commitments submitted by the Parties.












(14)


The Commission gave the Parties detailed feedback on the outcome of the market test on 11 January 2024.












(15)


On 29 January 2024, the Commission and the Parties discussed the need to extend the legal deadline for a Commission decision pursuant to Article 8 of the Merger Regulation by 5 working days pursuant to Article 10(3) second subparagraph, third sentence of the Merger Regulation. On 30 January 2024, the Parties have agreed to an extension of 5 working days in this procedure, by confirming its agreement in writing.












(16)


On 30 January 2024, the Parties submitted revised commitments (the ‘Revised Commitments’).












(17)


The draft Decision was consulted with the Member States during the Advisory Committee on Concentrations on 15 February 2024, which provided a favourable opinion. The Hearing Officer provided its favourable opinion on the proceedings in his report which was submitted on 7 February 2024.




4.   UNION DIMENSION









(18)


The undertakings concerned have a combined aggregate world-wide turnover of more than EUR 5 000 million (Orange: EUR 42 728,012 million; MásMóvil: EUR 2 837 million; combined: EUR 45 565,012 million). Each of them has an EU-wide turnover in excess of EUR 250 million (Orange: EUR […]; Lorca: EUR 2 837 million). Each of Orange and Lorca achieve more than two-thirds of its EU-wide turnover within a single Member State, but not within the same Member State (France for Orange and Spain for Lorca).












(19)


Therefore, the Transaction has a Union dimension pursuant to Article 1(2) of the Merger Regulation.




5.   THE RELEVANT PRODUCT MARKETS









(20)


While the Transaction affects a number of product markets, (5) the Commission maintains concerns in relation the following markets (‘Relevant Markets’):






i.


Retail supply of mobile telecommunication services;










ii.


Retail supply of fixed internet access services;










iii.


The hypothetical market for the retail supply of multiple-play bundles; and,










iv.


The hypothetical market for the retail supply of fixed-mobile convergent (‘FMC’) bundles.








6.   THE RELEVANT PRODUCT MARKETS









(21)


Following its investigation, the Commission has come to the conclusion that the geographic scope of each of the Relevant Markets is national (Spain). The Commission based its findings on past decisional practice and the results of the market investigation.




7.   COMPETITIVE ASSESSMENT









(22)


The Transaction gives rise to a number of horizontal and vertically affected markets. The following sections of the present note summarise the main findings of the Commission.




7.1.   Finding of a significant impediment to effective competition as a result of horizontal non-coordinated effects in the Relevant Markets









(23)


In the draft decision, the Commission notes that the Transaction would give rise to horizontal non-coordinated effects in the Relevant Markets in Spain. In particular, the Commission considered that:






i.


The combined market shares of the Parties in each Relevant Market would near or exceed 40 %, with high increments ranging between [10-20] %. Furthermore, by additionally relying on the market shares of the gross (subscribers) additions and the high margins of the Parties, the Commission found that the market shares of the Parties materially underestimate the actual market power the merged entity would enjoy post-Transaction.










ii.


The Transaction will result in reduced incentives for alternative mobile network operators (‘MNOs’) (Telefónica and Vodafone) to compete post-Transaction. Further, the Commission concludes that it is unlikely that post-Transaction Digi, individually or in aggregate with any of the other mobile virtual network operators (‘MVNOs’) would have the ability to counteract the likely anti-competitive effects of the Transaction.










iii.


The Commission’s investigation further revealed that the Parties are close competitors, on the basis of internal documents of the Parties, regulatory reports, diversion ratios and implied market shares calculation (6).










iv.


On the basis of Herfindahl-Hirschman Index calculations, results of the market investigation and internal documents of the Parties, the Commission also found that the Transaction would eliminate MásMovil as an important competitive force or at least an important competitive constraint that had been spurring Spanish mobile and fixed markets.










v.


Furthermore, the Commission found that (i) given the dispersed customer base of the Parties, there is very limited actual countervailing buyer power; and (ii) any entry would be unlikely and untimely.
















(24)


Lastly, the Commission has undertaken an in-depth analysis with regards to efficiencies brought by the Transaction, with regard to cost savings, elimination of double marginalization (‘EDM’), incremental FTTH roll-out and incremental 5G roll-out. In this regard, the Commission has concluded:






i.


Only a certain share of the efficiency claims based on cost synergies and EDM have been demonstrated as being verifiable, merger-specific and likely to benefit consumers. However, taking such efficiencies into account does not alter the Commission’s conclusion that the Transaction would significantly impede effective competition in each of the relevant markets discussed above, and such cost synergies would notably fall far short of offsetting the substantial price effects that the Commission considers to be likely to result from the Transaction.










ii.


The claimed efficiencies based on incremental FTTH and 5G roll-out have not been demonstrated as being verifiable for the reasons outlined above. In any event, even if they were to occur, any benefits in terms of improved quality or competition would only be expected to materialise in the medium term, and even then would only benefit a small sub-set of retail customers in Spain. On the other hand, the significant negative impact on competition, and notably the substantial likely price effects, would be felt by retail customers across the entire Spanish market immediately following the Transaction, and notably in the initial four years.








7.2.   No finding of a significant impediment to effective competition as a result of vertical input foreclosure effects resulting from the vertical relationships between the Parties’ activities on the market for the wholesale supply of access and call origination services on mobile networks (upstream) and the markets for the retail supply of mobile telecommunications services, the retail supply of multiple-play bundles and the retail supply of FMC bundles (downstream)









(25)


The Commission found that the Transaction is not likely to result in a significant impediment to effective competition as a result of vertical effects between the Parties’ activities on to the upstream market for wholesale supply of access and call origination services on mobile networks, which is an important input for the downstream markets for the retail supply of mobile telecommunication services, multiple-play bundles and FMC bundles in Spain. While the Commission considers that the Parties may have the ability or incentive to engage in input foreclosure strategies, the Commission concluded based on its market investigation that, in any event, such foreclosure strategies would not have a material impact on effective competition.












(26)



First, the Commission noted that the Parties would have the ability to engage in input foreclosure because:






i.


wholesale mobile network access is an important input for non-integrated retail operators;










ii.


the JV would have a significant degree of market power in the upstream market for wholesale mobile network access as the JV will be the number two player in the market for wholesale mobile network access, with a combined share of [20-30] % by volume and [20-30] % by value in 2022;










iii.


there are multiple forms of foreclosure that the JV could engage in, such as (i) not to deal with its actual or potential competitors in the vertically related market, and/or (ii) decide to raise the price it charges when supplying competitors and/or to otherwise make the conditions of supply less favourable than they would have been absent the merger, and/or (iii) more subtle forms of foreclosure (degradation of the quality of input supplied or only doing so under onerous conditions); and










iv.


access seekers would have limited available counterstrategies if the JV engaged in input foreclosure.
















(27)



Second, the Commission considers that JV would have the incentive to engage in input foreclosure because the financial gains in downstream retail markets from such foreclosure would significantly outweigh upstream losses, irrespective of the precise input foreclosure strategy adopted. Furthermore, the high increment and high combined retail share of the JV, in addition to high retail margins, are further indicators of an incentive to foreclose.












(28)



Third, even if the Parties may have the ability and the incentive to engage in input foreclosure following the Transaction, foreclosing wholesale mobile network access for non-vertically integrated operators would not have a significant detrimental effect on competition in the downstream retail markets for the provision of mobile telecommunication services and FMC bundles. In this regard, the Commission considers that that the targets of foreclosure (i.e. MVNOs, virtual operators or simply as access seekers), do not play a sufficiently important role in the competitive process on the downstream markets for retail mobile services and retail FMC bundles in view of their small share on the relevant downstream markets (even when considered collectively), their limited ability to exert pricing pressure on MNOs in the relevant downstream markets, and their limited ability to differentiate themselves from their host MNOs and typical focus on niche and low-end segments of the relevant downstream markets. The Commission considers that all the aforementioned factors currently limiting MVNOs’ and access seekers’ competitiveness would remain after the Transaction.












(29)


For the reasons set out above, the Commission concludes that foreclosing wholesale mobile network access for non-vertically integrated operators would not have a significant detrimental effect on competition in the downstream retail markets for the provision of mobile telecommunication services and FMC bundles.




7.3.   No finding of a significant impediment to effective competition as a result of vertical input foreclosure effects resulting from the vertical relationships between the Parties’ activities on the market for the wholesale supply of broadband access (upstream) and the markets for the retail supply of internet services, the retail supply of multiple-play bundles and the retail supply of FMC bundles (downstream)









(30)


With respect to input foreclosure, the Commission found that the Transaction is not likely to result in a significant impediment to effective competition as a result of vertical effects between the Parties’ activities on to the upstream market for wholesale supply of broadband access, which is an important input for the downstream markets for the retail supply of fixed internet services, multiple-play bundles and FMC bundles in Spain. While the Commission considers that the Parties may have the ability or incentive to engage in input foreclosure strategies, the Commission concluded based on its market investigation that, in any event, such foreclosure strategies would not have a material impact on effective competition.












(31)



First, the Commission noted that the Parties would have the ability to engage in input foreclosure because:






i.


wholesale broadband access is an important input for non-integrated retail operators;










ii.


the JV would have a significant degree of market power in the upstream market for wholesale mobile network access as the JV will be the number two player in the market for wholesale broadband access with a combined share over [30-40] % by volume in 2022;










iii.


there are multiple forms of foreclosure that the JV could engage in, such as (i) not to deal with its actual or potential competitors in the vertically related market, and/or (ii) decide to raise the price it charges when supplying competitors and/or to otherwise make the conditions of supply less favourable than they would have been absent the merger, and/or (iii) more subtle forms of foreclosure (degradation of the quality of input supplied or only doing so under onerous conditions) ; and










iv.


access seekers would have limited available counterstrategies if the JV engaged in input foreclosure.
















(32)



Second, the Commission considers that JV would have the incentive to engage in input foreclosure because the financial gains in downstream retail markets from such foreclosure would significantly outweigh upstream losses, irrespective of the precise input foreclosure strategy adopted. Furthermore, the high increment and high combined retail share of the JV, in addition to high retail margins, are further indicators of an incentive to foreclose.












(33)



Third, even if the Parties may have the ability and the incentive to engage in input foreclosure following the Transaction, foreclosing wholesale broadband access for non-vertically integrated operators would not have a significant detrimental effect on competition in the downstream retail markets for the provision of fixed internet services and FMC bundles. In this regard, the Commission considers that that the targets of foreclosure (i.e. FVNOs, virtual operators or simply as access seekers), do not play a sufficiently important role in the competitive process on the downstream markets for retail fixed internet services and retail multiple-play bundles in view of their small share on the relevant downstream markets (even when considered collectively), their limited ability to exert pricing pressure on FNOs in the relevant downstream markets, and their limited ability to differentiate themselves from their host FNOs and typical focus on niche and low-end segments of the relevant downstream markets. The Commission considers that all the aforementioned factors currently limiting FVNOs’ and access seekers’ competitiveness would remain after the Transaction.












(34)


For the reasons set out above, the Commission concludes that foreclosing wholesale mobile network access for non-vertically integrated operators would not have a significant detrimental effect on competition in the downstream retail markets for the provision of fixed internet services, multiple-play bundles and FMC bundles in Spain.




7.4.   Conclusion









(35)


The draft decision, therefore, concludes the Transaction would significantly impede effective competition in a substantial part of the internal market within the meaning of Article 2(3) of the Merger Regulation as a result of horizontal non-coordinated effects on the Relevant Markets in Spain.




7.5.   Undertakings submitted by the Parties









(36)


On 12 December 2023, in order to address the aforementioned competition concerns in the Relevant Markets in Spain the Parties have submitted the undertakings consisting of (1) a commitment to divest spectrum (‘Divestment Spectrum’); and (2) a commitment to enter an optional national roaming agreement (‘Optional NRA’). Lastly, the Parties have named Digi as the remedy taker (the ‘New MNO’).












(37)


The Divestment Spectrum includes a total of 60 MHz of spectrum across three (mid and high) frequency spectrum bands:






(a)


40 MHz of medium band spectrum (20 MHz in the 1.8 GHz frequency band and 20 MHz in the 2.1 GHz frequency band); and










(b)


20 MHz in the 3.5 GHz band.
















(38)


The Parties commit to transfer the ownership of all the rights of the Divestment Spectrum to the New MNO as soon as possible once the transfer of spectrum has been approved by the Spanish Ministry in charge of such approval. After the transfer of the Divestment Spectrum to the New MNO, the New MNO will be able to effectively use the Divestment Spectrum as soon as MásMóvil completes the technical and operational migration of MásMóvil’s customers from the Divestment Spectrum.












(39)


Under the Optional NRA, the Parties commit that the JV will enter into the Optional National Roaming Agreement with the New MNO which will provide the New MNO with a binding offer for capacity-based national roaming.












(40)


The pricing under the NRA Option would be capacity-based. i.e., based on the Network Capacity Usage of the New MNO. The NRA would cover all technologies (2G, EDGE, 3G, LTE, 4G, 5G NSA and 5G SA) and all mobile spectrum frequencies used by the Parties and available at any time to any client of the JV in the JV’s mobile network. It also includes an obligation to negotiate in good faith terms of access to any new technology implemented in the JV’s mobile network (e.g. 6G). The NRA Option will cover all data, voice, and messaging services.












(41)


Digi would have the right to exercise the NRA Option with an opt-in mechanism until at the latest on [a date in 2025-2026]. No penalty would be payable if the New MNO does not trigger the option by such date, or if Digi were to (having not triggered the option by such date) decide to enter into an alternative national roaming agreement with another MNO. If exercised, the NRA Option will offer National Roaming Services until [2033-2038].




7.6.   Assessment of the undertakings submitted









(42)


The Commission launched a market test of the undertakings on 12 December 2023.












(43)


The Commission considers that the proposed undertakings are effective and suitable to resolve the concerns raised by the Transaction in the Relevant Markets in Spain.












(44)



First, based on the submissions of the Parties and Digi, as well as the Independent Advisor Report, the Commission considers that Digi complies with the standard purchaser requirements detailed in the Remedies Notice in terms of independence, financial resources, and the absence of prima facie competition concerns.












(45)



Second, the Commission considers that the Divestment Spectrum, in order to put Digi in a position to replicate the constraint exerted by MásMóvil, should be at least sufficient to enable Digi to capture a comparable percentage of its total mobile traffic on its own network to that which MásMóvil captured on its own network in 2021 and prior years, i.e. sufficiently before the Transaction was announced, which was approximately [40-60] % or more of its total mobile traffic.












(46)



Third, with regard to the Optional NRA, the Commission considers it essential that the NRA remains an option for the New MNO in order to ensure and maintain the competitive dynamics on the wholesale mobile network access and call origination services between MNOs in which the Commission has found that the Transaction does not raise competition concerns as to its compatibility with the internal market. Further, the Optional NRA is sufficiently competitive while incentivize Digi to roll out its own network rather than relying on the NRA in the medium to long term. Lastly, the Optional NRA covers all technologies as well as the possibility for Digi to request access to future new mobile technology generations (such as 6G).












(47)


Even though the Commission may retain some doubts as to whether the Divestment Spectrum, of itself, would be sufficient to remove the significant impediment to effective competition on a lasting basis, in particular in the medium frequency bands, when considered together notably with (i) the NRA Option (given the hybrid model of MásMóvil that the remedy is intended to replicate) and (ii) the pre-Transaction growth trajectory of Digi, the Commission considers that the undertakings will remove entirely and in an effective manner the competition concerns identified in the Relevant Markets.












(48)


In its draft decision, the Commission has, therefore, reached the conclusion that, on the basis of the undertakings submitted by the Parties, the notified concentration will not impede effective competition in the Relevant Markets in Spain.




8.   CONCLUSION









(49)


For the reasons mentioned above, the decision concludes that the proposed concentration will not give rise to horizontal non-coordinated effects in the Relevant Markets in Spain as a result of which effective competition would be significantly impeded in the internal Market or in a substantial part of it.












(50)


Consequently the concentration should be declared compatible with the Internal Market and the functioning of the EEA Agreement, in accordance with Article 2(2) and Article 8(2) of the Merger Regulation and Article 57 of the EEA Agreement.






(1)  
            OJ L 24, 29.1.2004, p. 1.

(2)  Other entities to be retained by Orange perform activities of a more ancillary nature and include: Inversión en Telecomunicaciones (a fund under liquidation process), Business & Decision España (management consultancies and system integrators for data intelligence & digital experience), Orange Business Spain SAU (providing communication products and services to enterprises), Orange Bank S.A. (aims to develop a complete banking offer, mainly for individual customers, accessible by mobile phone on the model of online banks).

(3)  Publication in OJ C 96, 15.3.2023, p. 9.

(4)  Publication in OJ C 137, 20.4.2023, p. 1.

(5)  The Transaction gives rise to a number of other relevant and affected markets. However, the Commission has not identified any concern on those markets.

(6)  Implied market shares indicate how large the Parties’ market shares would have to be for them to give rise to the observed diversion ratios.


ELI: http://data.europa.eu/eli/C/2024/4549/oj
ISSN 1977-091X (electronic edition)