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Hutchison-O2 Wins EU Deal Approval on Pledge to Help Irish Rival

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Competition Commissioner Joaquin Almunia
Competition Commissioner Joaquin Almunia said, “We will consider the merger completed, formally cleared, once this signature” is concluded. Photographer: Andrew Harrer/Bloomberg

May 29 (Bloomberg) -- Hutchison Whampoa Ltd. won European Union approval to buy Telefonica SA’s O2 Irish unit after it pledged to offer access to a smaller mobile operator.

EU regulators won’t finalize clearance until Hutchison signs a deal that helps one so-called mobile virtual network operator start services, Competition Commissioner Joaquin Almunia said yesterday. That will help competition as two of Ireland’s four operators merge, he said. Liberty Global Plc’s UPC unit and Carphone Warehouse Group Plc are poised to enter the market, said a person familiar with company talks.

Billionaire Li Ka-shing’s Hutchison is offering to cede 30 percent of its combined network capacity in Ireland to two virtual operators. A deal with one of them is a condition for EU approval and would free spectrum to enable the new rival build its own network. Telefonica, which wants to merge its German unit with Royal KPN NV’s E-Plus, has separately offered concessions to allay competition concerns over that deal, next in line for an EU decision.

The Irish requirements are “a tough package,” said Paul Marsch, an analyst at Berenberg Bank in London. They may signal that “remedies are not getting lighter” as Almunia seeks “to put in place a legacy of protecting the consumer from consolidation,” he said. “There’s no reason in my mind why the German package would be less than this.”

‘Completely Different’

Almunia said yesterday that a decision on the German transaction would come “days before” the July 10 deadline. The German situation is “completely different” from the Irish transaction, he said. He’s previously said such deals can’t come at the expense of higher prices for consumers.

UPC may sign an agreement within weeks, adding mobile-phone services to its existing Irish Internet and cable services, piggybacking on Hutchison’s network at the start, said the person familiar with the talks, who asked not to be identified because negotiations aren’t final.

UPC could then move toward running its own network, taking up an offer from Hutchison of spectrum that would be open for 10 years from the start of 2016, the person said.

Hutchison is “already in advanced discussions with a number of potentially interested parties” to purchase network access, Pat Walsh, a spokesman in Dublin, said in a statement. The company expects to shortly finalize “the legal requirements to complete the acquisition,” Robert Finnegan, chief executive officer of Hutchison’s Irish unit, said in a separate e-mailed statement.

4G Services

Liberty Global declined to comment and Carphone Warehouse couldn’t be reached for comment yesterday.

Hutchison has also agreed to share network infrastructure with Ireland’s smallest operator, Eircom Group Ltd., to help it roll out 4G services.

Hutchison agreed last year to buy O2, Ireland’s No. 2 mobile operator, for as much as 850 million euros ($1.16 billion). The deal will give it market share of about 37 percent, with some 2 million subscribers, Hutchison said in its statement. Vodafone is the market leader with about 40 percent of the market while Eircom has 20 percent, the EU said.

Almunia said the “upfront” condition for Hutchison to agree terms with a virtual operator was necessary to ensure that new competition entered the market. Regulators “were wrong” to approve Hutchison’s purchase of an Orange unit in Austria without demanding such a pledge, he told reporters.

Orange Austria

While Hutchison struck an accord in 2012 for Liberty Global to offer services in Austria, the company hasn’t yet started selling to customers.

The Irish deal requires Hutchison to sell a fixed amount of capacity to at least one operator for at least five years and to offer technical assistance to encourage commercial operations to start as soon as possible, the EU said.

“If they don’t fulfill the conditions, there’s no merger, that’s all, no problem,” Almunia said of the Irish deal.

Ireland’s telecommunications regulator ComReg said yesterday that the EU’s conditions were “insufficient” to address competition concerns and “significant negative consequences for Irish consumer welfare may result” after the two mobile operators combine, according to a statement on its website. It will monitor the markets and identify possible spectrum releases to stoke more competition, it said.

In response to the Irish regulator’s comments, Antoine Colombani, a spokesman for the commission, said the commitments addressed the EU’s concerns.

To contact the reporter on this story: Aoife White in Brussels at awhite62@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net Peter Chapman, Robert Valpuesta

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