By Jacques de Greling, Director, Corporate Ratings

In the opinion published last week, ECJ Advocate General Julianne Kokott recommended that the decision by the ECJ’s General Court upholding an appeal against the EC’s merger ruling be set aside and that the General Court rule again in the case.

We think that if the ECJ were to follow Kokott’s recommendation, it would reinforce the position of the Commission which remains reluctant to approve mergers between mobile operators in a single country.

In addition, the ECJ’s decision would delay any plans by European operators to agree to in-country mergers until the General Court has come up with a new ruling.

Opinion clouds outlook for Orange’s merger plan in Spain

Among Europe’s operators, the most immediately concerned is France’s Orange SA which has agreed, in principle, to merge Orange Spain with MasMovil (formely Yoigo) without yet notifying the EC’s competition authority. Vodafone PLC is also in talks to merge its mobile business with Hutchison-Three in the UK.

The proposed merger of British mobile operators Hutchison and 02 in 2016, which would have reduced the number of mobile operators from four to three, failed to get EU anti-trust approval on the grounds that it would have been detrimental to consumers.  

Hutchison took this decision in court, and in 2020, the General Court of the European Court of Justice over-ruled the EC’s decision, mostly by arguing that Brussels had not demonstrated adequately, or proved, that the merger would result in an uncompetitive market. The EC appealed this judgement.

In the new ECJ opinion, the advocate general argues that the General Court was too demanding in seeking proof that the Hutchinson-O2 deal would have damaged competition given the discretion the EC is entitled to use in judging competition issues and the room it has to make decisions based on plausible outcomes and/or forecasts.

Little rationale for regulators to relax tough merger stance

Given the challenges companies face to eke out growth in Europe’s increasingly mature telecommunications sector, some investors and management are counting on national mobile mergers to provide more upside.

However, the argument made to regulators that consolidation is necessary to facilitate the investment needed in upgrading mobile network infrastructure looks less strong.

Europe’s mobile sector remains robustly profitable and  cash-generative despite the recent economic crises in Europe, with ample financial headroom to cope with relatively modest capital-spending requirements in mobile telephony. With the limited number of competitors, there is little urgency in the consolidation of national telecoms markets from a regulatory perspective.

We expect the ECJ’s final decision – assuming it follows the non-binding opinion of the Advocate General – to be released around year-end. In a likely shortened follow-up procedure, the General Court will reconsider the case using the guidelines provided in the final judgement from the ECJ, with a final decision due probably in the second half of next year.