Monday, January 9, 2006

European Commission Clears O2 Acquisition by Telefónica

The European Commission cleared the proposed acquisition of O2 by Telefónica. In order to relieve anti-competitive concerns, Telefónica has undertaken to leave the FreeMove alliance.

Telefónica is currently a member of the so-called FreeMove alliance, where it co-operates with the other three largest incumbent network operators in the EEA (France Télécom, Telecom Italia, and Deutsche Telekom). O2 participates in the Starmap alliance, where a range of smaller telecommunication companies co-operate under a similar but albeit more loosely structured framework.

The Commission found that the merger would therefore give rise to competition concerns on the market for international roaming services. At the wholesale level, telecommunication companies buy international roaming from each other in order to allow their mobile telephony subscribers to make and receive calls while traveling abroad. In particular, the FreeMove alliance was founded in order to concentrate the exchange of international roaming business among its members.

The Commission's market investigation showed that following the proposed transaction, O2 would in the normal course of events be expected to move from the Starmap alliance to the FreeMove alliance, or align its behaviour with that of the latter, as a consequence of its dependency on Telefónica. As a result, O2 would in all probability be less ready to exchange international roaming traffic with non-FreeMove members. This would imply significant cost increases for those companies, in particular in the UK where no international roaming provider independent of FreeMove would remain after the transaction (except for the fully integrated Vodafone group).

See also