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Telefonica Talks With Smaller German Rivals Said Reviewed

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Aug. 1 (Bloomberg) -- Telefonica SA’s negotiations to bolster the market power of smaller competitors in Germany, a condition for European Union clearance of its takeover of Royal KPN NV’s E-Plus unit, are under EU scrutiny.

The European Commission, the EU regulator in Brussels, asked United Internet AG to provide details of its talks with Telefonica to acquire wireless capacity, according to a questionnaire obtained by Bloomberg News. United Internet was requested last month to send a timeline of written correspondence, minutes for meetings and calls and attendance notes as well as term sheets, proposals, offers and similar documents provided by Telefonica, according to the document.

Telefonica struck a deal with Drillisch AG in June that lets the smaller provider lease as much as 30 percent of the enlarged company’s wireless capacity in Germany. That agreement, which left Drillisch rivals United Internet, Freenet AG and Liberty Global Plc’s Unitymedia KabelBW in the cold, is key to allaying the commission’s concerns about Telefonica’s 8.55 billion-euro ($11.5 billion) takeover of E-Plus.

The E-Plus deal would create Germany’s largest wireless carrier by customers, with 45 million connections, ahead of Deutsche Telekom AG and Vodafone Group Plc. It also removes E-Plus as a competitive force that led on price cuts and innovations over the last decade.

Regulators said Telefonica’s concessions to get the deal through focused on strengthening virtual operators that piggyback on networks run by other companies because it was “very unlikely” that another physical-network operator would enter the German market.

Oliver Keil, head of investor relations at Drillisch, declined to comment, as did Maika-Alexander Stangenberg, a spokesman for United Internet, the operator of 1&1. Unitymedia KabelBW spokesman Olaf Winter and Kai Holtmann, an investor relations manager at Freenet, also declined to comment. Antoine Colombani, a spokesman at the commission, declined to immediately comment.

Albert Fetsch, a spokesman for Telefonica Deutschland Holding AG, reiterated that the company expects the E-Plus transaction to close by the end of September. He declined to comment on details of the review.

To contact the reporters on this story: Gaspard Sebag in Brussels at gsebag@bloomberg.net; Cornelius Rahn in Berlin at crahn2@bloomberg.net

To contact the editors responsible for this story: Peter Chapman at pchapman10@bloomberg.net Jones Hayden

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