The union of Orange and MásMóvil will leave 94% of the telephony market in the hands of three companies

The union of Orange and MásMóvil will leave 94% of the telephony market in the hands of three companies

The union of Orange and MásMóvil will leave 94% of the telephony market in the hands of three companies

The long-distance race had been launched for months. Orange and Vodafone, second and third operator in the Spanish market, had advanced their intentions to seek mergers and all eyes were directed towards MásMóvil, as the possible partner of any of them. Finally, it was the Frenchwoman who took the lead and practically crossed the finish line. Orange and MásMóvil have announced their negotiations "exclusively" on Tuesday and they have very advanced the agreement, which they plan to close before the summer. This merger achieves a long-awaited goal among the directors of the large telecommunications companies: a sector with only three competitors.

To understand the operation, which plans to create a group valued at almost 20,000 million, it is necessary to rewind to the continuous calls for concentration made by telecommunications companies not only in Spain but at a European level. All of them have charged against the competition authorities and regulators for encouraging, as they pointed out, a sector based on price competition that eroded their margins and complicated the necessary investments in infrastructure. In sector meetings, references to China or the United States were common, where, as they stated, the markets are divided into a small number of operators, compared to Europe, where there are hundreds.

In this way, the sector had already shown its intention to concentrate. Not only in Spain there are movements of this type, also in Italy. The imminent agreement between Orange and MásMóvil draws a new map in the Spanish market in which it goes from four operators to three. This trio of operators (Movistar, Orange-MásMóvil and Vodafone) will control most of the telephone business, adding market shares of between 94% and 97%, depending on the activity. In this way, although there are other operators that gain thousands of clients each month such as Digi or Avatel, the truth is that their market share is still token.

Going to the statistics of the National Commission of Markets and Competition (CNMC), the sum of Orange and Más Móvil will create the main operator in mobile telephony, mobile broadband or fiber. It will not be considered the largest company in the sector since in terms of revenue, which is expected to total 7,500 million euros, it still does not reach Movistar. According to the CNMC, the sum of the two companies will encompass 24.2 million mobile customers, compared to 15.9 million Movistar or 12.5 million Vodafone. Of these, 19.8 million customers also have internet on their phones, compared to 13.8 million for Movistar and 11.9 million for Vodafone. The last of the businesses that the new company will lead will be fixed broadband in the home — fundamentally fiber, although it includes other connections. Orange and MásMóvil add 6.8 million households, compared to 5.8 million Movistar. Vodafone is left with 3 million.

The three operators will control practically all of these three businesses. As far as mobile customers are concerned, they will add a share of 94.3%. Slightly lower is the share among customers who have mobile internet, with 94% of the total added by the three companies. Finally, the largest cumulative market share will be in the home internet market. The more than 15.6 million households whose internet service depends on these three competitors account for 97% of the total market. According to the CNMC, only 477,000 households have another provider. The other big business of recent years for telecommunications companies is pay television. In this case, the fee will be somewhat lower, but it is still around 80%.

For all these reasons, this operation opens up an important matter for the rules of competition, both in Spain and in Europe. The figures of this agreement make the merger one of the most important in recent years in the telecommunications sector in Spain. Orange and MásMóvil will share 50% of the new company, which starts with a valuation of 19,600 million euros, so due to its size it will foreseeably make the European Commission have to analyze this agreement. The directors of the sector have been trusting for months that the conditions required by the competition authorities (known as remedies) are milder than in the past. These community demands led to the derailment in 2016 of the merger of O2 (Telefónica) and Hutchinson. Therefore, the result of this operation could mark others that arrive in the future.

Consulted by this operation, the CNMC points out that until it is formally communicated, it will not be able to assess the implications that this agreement has for competition or the doubts that the high degree of concentration in the sector may generate. The negotiations, although they are already very advanced, have not yet culminated in the final agreement. Both companies trust that the agreement will be closed before the summer, during the second quarter of the year, for which they must have the endorsement of the competition authorities. Once the operation is agreed, it must be formally communicated to the CNMC, which will then begin a process that can last up to two and a half months.

The process before the CNMC and the community authorities will mark the sector for two reasons. The first, due to the very success of the operation and the implications that it may have on other agreements in Europe. The second, for the composition of the Spanish market. In the event that the CNMC considers that there are problems for competition, the new market scheme could force divestments in some businesses. Not surprisingly, Orange-MásMóvil would have a market share of 43% in mobile telephony and 42% in internet at home. In pay television, where Telefónica is the largest operator, the share would be somewhat lower, 24%.

Coincidentally, Orange and MásMóvil are united by one of those forced divestments after a merger. In 2016, the French company announced the merger with Jazztel. Competition forced Orange to divest a package of fiber customers with 750,000 homes. The buyer of that group of clients was MásMóvil in what was one of its first large operations with which it climbed to become the fourth largest operator in the country. After that came Pepephone, Yoigo, LlamaYa, Lebara, Hits Mobile, Lycamobile, and the last one, Euskaltel. With this operation, carried out last year, it acquired the fifth company in the sector (in turn also owns R and Telecable) and managed to get closer to the three large operators. Now, together with Orange, it will climb to the second.

Orange comes to this operation after having suffered, like Vodafone and Movistar, the setbacks of the price war that has shaken the sector since 2018. The low price pressure exerted by the new operators —also MásMóvil— had caused the continued loss of income for the large groups in the sector. This was the justification that both Orange and Vodafone had raised when they announced two separate EREs that affected nearly a thousand workers. The poor results of the French company in Spain had forced the 'teleco' to cut to less than half the book value that it gave to its Spanish subsidiary: from 6,800 to 3,000 million euros.

With this operation there is a victim. Vodafone Spain is relegated in the telephony sector behind Telefónica and Orange, at a significant distance. The subsidiary of the British company had been identified as the main candidate to merge with MásMóvil and, in fact, had repeatedly reported its intention to participate "actively" in the consolidation of the telecommunications sector. For example, compared to 42% of the home internet market that Orange-MásMóvil will have and 35% of Movistar, Vodafone will have 18%, far from its competitors. Consulted by this means about the new situation that is opening up for the company, Vodafone has avoided making any assessments. The company's shares have fallen by 3.45% after announcing the negotiation of Orange and MásMóvil.

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