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Hutchison Austria Seen as Lesson for EU in E-Plus, O2 Probes

The European Union’s failure to stoke competition when Hutchison Whampoa Ltd. (13) bought a rival Austrian unit should be a warning for EU probes into other telecommunications deals by Hutchison and Telefonica SA (O2D), said the head of the nation’s antitrust authority.

Prices surged after EU watchdogs waved through Hutchison’s purchase of wireless carrier Orange Austria even after regulators imposed conditions aimed at mitigating the effect of losing one of the nation’s four operators. The EU should heed that lesson as it examines two deals that would also knock out a competitor, Theodor Thanner said in a telephone interview yesterday.

Price increases “were one of our fears and they became true,” Thanner said. “For the future, and this concerns Ireland and Germany, one is well advised to look carefully at Austria’s experience.”

Just over a year after winning EU approval for its Austrian deal, Hutchison will try to overcome EU concerns about its bid for O2 Ireland at a hearing with European Union regulators in Brussels today. Telefonica’s German unit may soon receive objections listing antitrust concerns to its 8.55 billion euro ($11.8 billion) bid for Royal KPN NV (KPN)’s E-Plus, two people familiar with the matter said last week. Both transactions would cut the number of mobile operators to three from four.

Rival Services

Following the EU probe of its Austrian purchase, Hutchison ceded spectrum and offered network access to up to 16 so-called mobile virtual network operators so they could start up rival phone services.

No company took up its spectrum offer in an auction last year and no MVNO rival has so far rolled out a phone service. While Liberty Global Inc.’s UPC bought access, it has yet to commence operations. Several new MVNOs are expected to enter the Austrian market later this year, said Tom Tesch, a spokesman for Hutchison’s Austrian unit, in an e-mail.

Such concessions to the EU’s antitrust authority were designed to spur competition in Austria as one operator disappeared, EU Competition Commissioner Joaquin Almunia said in 2012. Austrian consumers would continue to enjoy innovative mobile telecommunications services at an attractive price, he said as he approved the deal.

The conditions “haven’t worked so far,” Thanner said. “Structural conditions, where you make someone sell parts of the company, are more effective,” he said.

Austrian mobile-phone prices rose for the first time in three years, increasing by as much as 11 percent in the fourth quarter, the Austrian telecommunications regulator RTR said last month.

Fourth Operator

“As it looks now, it will take almost two years” for UPC to start offering phone services, said the RTR’s head Johannes Gungl in a telephone interview yesterday. While setting a deadline could have sped up the start of an MVNO, “I don’t think we could have done more to attract a fourth operator” to build its own network in Austria, Gungl said.

Ireland’s and Germany’s telecommunication regulators, the Commission for Communications Regulation and the Federal Network Agency, inquired about Austria’s experience with the merger, Gungl said. The two agencies were curious about the RTR’s dealings with the European Commission and also wanted to know what Austria would do differently in another takeover decision, he said.

Tariff Levels

It’s “deceptive” to blame the Hutchison acquisition for price increases in Austria because tariffs were low before the merger, said Peter Alexiadis, a lawyer for Gibson Dunn & Crutcher LLP in Brussels.

Telefonica Deutschland declined to comment on the EU probes.

“It is far too early to make an assessment of the impact of the merger,” Hutchison’s Tesch said. “Austrian price levels still remain among the lowest in Europe. The perceived price increases go along with increased usage and significantly higher costs for operators.”

There are “significant barriers” to new rivals in the telecommunications industry in German and Ireland, the EU’s antitrust chief Joaquin Almunia said last week.

Regulators can tackle such barriers by ensuring that companies can share network infrastructure, such as masts to increase mobile coverage, and keeping access pricing at an attractive level for virtual operators, Alexiadis said.

To contact the reporters on this story: Aoife White in Brussels at awhite62@bloomberg.net; Alexander Weber in Vienna at aweber45@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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