UPDATE 1-EU regulators open lengthy probe into Telefonica, KPN deal

BRUSSELS Fri Dec 20, 2013 7:40am EST

BRUSSELS Dec 20 (Reuters) - EU antitrust regulators opened on Friday an in-depth probe into Telefonica's proposed 8.6 billion euro ($11.9 billion) takeover of KPN's German unit, saying the deal may reduce competition in the German mobile market.

Spanish telecoms provider Telefonica's takeover of KPN's E-Plus will put it on par with market leaders Deutsche Telekom and Vodafone..

"At this stage, it cannot be excluded that the reduction in the number of competitors following the merger would increase the likelihood that MNOs (mobile network operators) will coordinate their competitive behaviour and increase prices," the European Commission, which acts as the EU's competition watchdog, said in a statement.

The European Commission set a May 14 deadline for its decision. Reuters had reported on Dec. 12 that the EU watchdog would examine the case in detail.

The case is crucial for the European telecoms industry, which sees itself in need of consolidation but is wary of competition regulators demanding onerous concessions to ensure a level playing field among fewer players.

In 2012, the Commission allowed Hutchison to buy Orange's Austrian unit on the condition that they would help new operators to enter the market.

According to Citigroup analysts, Telefonica and KPN will need to make some significant concessions to get regulatory approval.

"We expect Telefonica Deutschland/E-Plus will be mandated to offer some form of a wholesale reference offer to be available to (mobile virtual network operators) MVNOs/service providers and on a national roaming basis (in case a new entrant emerges)," they wrote in a client note.

EU regulators may want a fourth mobile operator to boost competition as the deal reduces the number of mobile providers in Europe's biggest market from four to three, technology and telecoms consultant firm Rewheel said in a note last month.

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