Hutchison 3G Italy Deal Faces In-Depth Review by EU Watchdog

  • Watchdogs sets Aug. 10 as deadline to decide on transaction
  • Regulators concerned about higher prices, less choice

CK Hutchison Holdings Ltd. and VimpelCom Ltd. face an in-depth European Union probe into their plans to combine their Italian telecommunications units after the bloc’s antitrust watchdog raised concerns the deal could lead to higher prices and less choice for mobile users.

The deal, valued at 21.8 billion euros ($24.7 billion), would create a carrier that would unseat Telecom Italia SpA as the Italy’s largest wireless provider by customers. The 50-50 venture will pool the assets of 3 Italia, an asset of billionaire Li Ka-shing’s Hutchison, and VimpelCom’s Wind Telecomunicazioni, the companies said when they announced the deal in August.

The EU’s in-depth analysis of the merger comes on top of the regulator’s ongoing review of Hutchison’s plans to combine its Three unit in the U.K. with Telefonica SA’s O2. A lawyer for Hutchison said March 11 at a conference in Brussels that while EU regulators are citing economic models that predict the deal would trigger price rises of as much as 6.7 percent, this is far less than forecasts for previous phone mergers approved by the EU.

“Mobile telecom services are increasingly important in our daily lives,” EU Competition Commissioner Margrethe Vestager said Wednesday in a statement. “We need to make sure that the proposed transaction will not lead to higher prices or less choice in mobile services for Italian consumers.”

Hutchison and VimpelCom in a joint statement said the EU’s decision was “widely expected in the context of the commission’s approach to in-country telecoms mergers.”

The companies have had “open and constructive discussions with the commission throughout the first phase of the examination, and will continue to work closely with the commission to obtain clearance” for the deal, they said. The combined company “will bring significant benefits for consumers in Italy and we are confident that it will be approved.”

The commission in Brussels said Wednesday that its initial analysis identified several areas of concern, including that Hutchison 3G and Wind “compete against each other in the retail mobile telecommunications market in Italy.” Combining into one could lead to higher prices and “less investment in mobile telecommunications networks,” the EU said.

The transaction would also reduce the number of hosts of mobile virtual network operations, the commission said. This could create “less choice of host networks” for prospective and existing MVNOs, the regulator said. Reducing the number of competitors could also raise the likelihood of mobile network operators coordinating and increasing prices “on a sustainable basis on the retail and wholesale markets,” the commission said.

EU regulators will focus their analysis on “the extent to which the parties are close competitors, the market incentives that would be faced by the joint venture and the potential response of its competitors,” the commission said, setting Aug. 10 as the deadline for a decision.

The Italian deal would create a carrier with more than 31 million customers and 6.4 billion euros in 2014 sales. The companies are targeting annual savings of 700 million euros as they try to create a stronger and more efficient rival to Telecom Italia and Vodafone Group Plc’s local unit.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE