Orange Sees German Mobile Merger Approval Triggering Shakeup

Orange SA, France’s biggest phone company, said regulatory approval of Telefonica SA and Royal KPN NV’s proposal to combine their German assets would trigger a shakeup in Europe’s telecommunications industry.

“If Germany accepts to go from four carriers to three, it will create an earthquake in Europe,” Chief Executive Officer Stephane Richard said in Paris yesterday. “It will force other countries to reconsider their positions on consolidation.”

The takeover of KPN’s E-Plus by Telefonica Deutschland Holding AG, which sells services under the O2 brand, will get a close look from European competition watchdogs. With more than 100 carriers in the region’s fragmented phone market and many struggling to keep up profitability, an approval of the combination of O2 and E-Plus -- to create Germany’s largest wireless operator by customers -- would encourage more mergers and acquisitions in the industry.

Orange would seek to consolidate its position in countries including Spain and Poland, and consider fixed-line acquisitions in Belgium and Romania, where it sells only wireless services, Richard told reporters.

European Union antitrust chief Joaquin Almunia’s spokesman, Antoine Colombani, said last week there’s no “magic number” for operators in a region. KPN and Telefonica haven’t notified the European Commission, the EU’s administrative arm, of their official proposal, and they may have to offer concessions such as asset disposals to win approval.

Vodafone Group Plc and Deutsche Telekom AG also sell phone services in Germany.

‘Optimal Level’

With earnings under pressure amid falling prices and investments needed to upgrade networks, carriers from EE in the U.K. and Vivendi SA’s SFR in France to Telecom Italia SpA and Spain’s Yoigo are also considering partnerships or share sales. EE is a 50-50 venture between Orange and Deutsche Telekom.

“Recent deals in the telecoms market have shown that politicians have sometimes under-estimated the reality of our industry, with the heavy investments it entails,” Richard said at a press conference. “The optimal level of competition looks to be three carriers per market rather than four.”

Orange rose 0.3 percent to 8.44 euros at 9:13 a.m. in Paris, valuing the company at 22.3 billion euros ($29.6 billion).

Network Sharing

In France, Orange has struggled to stem a slide in its phone bills since Iliad SA became the fourth mobile carrier in 2012, prompting a price war and cost cuts among rivals.

Almunia has indicated that he sees consolidation in the industry could be helpful, saying earlier this year the fragmentation “preoccupies” him. Some local watchdogs have kept to a tougher stance. While the competition authority in France has encouraged sharing networks, it has said that straight mergers between carriers are neither possible nor desirable.

Neelie Kroes, the European Commissioner in charge of the digital agenda, will this week unveil sweeping reform to make Europe operate more like a single market. Her proposal aims to get rid of roaming charges and standardize processes for governments to allocate resources like spectrum licenses in an attempt to make the region’s phone market -- which has fallen behind the U.S. -- more competitive.

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