Telecom operators TeliaSonera and Telenor have dropped plans to merge their Danish businesses, saying on Friday they could not agree terms with Europe's new competition commissioner and raising concerns for bigger deals in other European mobile markets which are awaiting approval.
EU commissioner Margrethe Vestager said the two Nordic firms had not done enough to allay her concerns that reducing the number of mobile network operators in Denmark from four to three would have damaged competition.
“What we were looking at were very serious concerns. To me it was necessary to have a fourth mobile operator,” European Competition Commissioner Vestager told reporters on the sidelines of a conference.
However, Vestager said there should be no conclusions drawn with regard to the two merger deals in Italy and Britain which she will examine in the coming months and would also reduce the number of local network operators to three from four.
In Britain Hutchison Whampoa has agreed to buy Telefonica’s mobile unit O2 UK and in Italy Hutchison has agreed a merger of its 3 Italia with Vimpelcom’s Wind Telecommunicazioni in a joint venture.
John Strand, a longtime consultant to Nordic telecoms companies who advocates more consolidation in Europe, said the consequences were huge.
“This will impact the deal reviews in England and Italy, and there is a real risk that one of those deals will be pulled.”
“If you can’t go from four to three operators in a tiny market like Denmark, then why allow England and Italy, which are much bigger, to consolidate?”
Strand said the major sticking point was that Teliasonera and Telenor could not find a company willing to become the new competition that the regulators wanted to create via remedies.
Shares in Danish market leader TDC fell 5.5 per cent on the news while the Stoxx Europe 600 European telecoms sector index was down 1.8 per cent.
TDC could find it “very difficult” to uphold its dividend at today’s level as a consequence of the news, Nordea said.
“If the requirement is that it has to remain a four-player market, this is the end of in-market consolidation in Europe,” the broker said in a note: “We believe this could impact the valuation of the entire telco space.”
TeliaSonera and Telenor announced their Danish merger deal last December, saying the combination would boost margins in their toughest market.
Following objections from the regulators the two had offered to sell up to 40 percent of a network infrastructure unit, according to a European Commission document seen by Reuters.
TeliaSonera Chief Financial Officer Christian Luiga said the operator had come up with several proposals but could not go further as there would not have remained enough economic value for them.
Analysts were surprised by the dropped merger plans.
"It's surprising given that the European Union has approved other four-to-three mergers," said Handelsbanken Capital Markets analyst Thomas Heath, referring to approvals given by Vestager's predecessor to such deals in Austria, Ireland and Germany.