Telefónica cleared to buy O2 (with strings)

The European Commission has cleared Telefónica’s plan to buy O2, on condition that the Spanish telco leaves the FreeMove international roaming alliance.

Telefónica has committed itself to do this “as soon as possible” and not to re-enter that alliance without the Commission’s prior consent.

FreeMove currently involves Europe’s three largest network operators – France Telecom, Telecom Italia, and Deutsche Telekom – alongside Telefónica. 02 is a part of the Starmap alliance, a group of smaller telcos who cooperate in a similar roaming framework.

The Commission said “this gave rise to competition concerns on the market for international roaming services” because if O2 was to join FreeMove it would “in all probability be less ready to exchange international roaming traffic with non-FreeMove members”.

Customers outside the FreeMove group might then face substantial cost increases for roaming. In the UK, only Vodafone would be outside the FreeMove alliance.

Telefónica, the world’s fifth-largest telecommunications company by market value, will be paying around e28bn for 02. The combined operation will have annual sales in the order of e40bn.
Telefónica has said it now intends to re-establish a strong financial position, following a slew of acquisitions in the last 18 months. In particular it is promising to reduce current debt levels and grow its revenues faster than its competitors.

Interestingly, the domestic mobile phone business of Telefónica is involved in a legal battle with Vodafone Spain. Telefónica claims Vodafone has stopped potential customers from changing to Telefónica Móviles while retaining their original numbers. Vodafone is arguing that Telefónica Móviles has overstated the number of users who have tried to transfer.