(Repeat for additional subscribers)
May 30 (The following statement was released by the rating agency)
Regulatory approval by the EU Competition Commission of
Hutchison Whampoa's O2 Ireland acquisition boosts the chances of Telefonica
getting a green light for its acquisition of E-Plus in Germany and could open
the door for consolidation in Spain, Fitch Ratings says. A condition of the
approval is that Hutchison must provide network capacity to two Irish mobile
virtual network operators (MVNOs), but we do not expect this to have the same
disruptive impact that MVNOs have had in some other European markets.
The Competition Commission's approval follows a similar decision to allow
Hutchison to buy Orange's operations in Austria, and indicates a gradual
softening of European opposition to telecom consolidation. This could allow
Telefonica's much larger proposed acquisition of KPN's German E-Plus arm to
proceed. But there are significant differences so that approval is not certain.
In particular the German market is much bigger than Ireland's or Austria's,
which could lead the regulator to decide that the country can support four major
If the German deal is approved it will be positive for the credit profile of
both companies. Telefonica will benefit from a significantly stronger operating
profile, while KPN will receive EUR5bn in cash and a stake in the enlarged
German Telefonica business.
Approval could also open the door to consolidation in other markets such as
Spain and Italy. TeliaSonera has previously considered selling its Spanish
Yoigo mobile operations, but shelved these plans and concentrated on building
its market share, helping to drive fierce price competition in the process. It
is possible a successful German deal could make TeliaSonera look again at
selling the business, which would be positive for all Spanish operators if it
reduced damaging price competition.
The Hutchison/O2 Ireland deal should reduce competitive pressures by cutting the
number of operators from four to three and transforming Hutchison's Three arm
from a disruptive challenger to a business with a leading position in a market
where competition is more evenly balanced.
While Hutchison must provide 30% network capacity to two MVNOs, we do not
believe a new MVNO entrant has the potential or motivation to disrupt the market
as much as Hutchison's Three did in the past. The most likely partner for this
capacity is Liberty Global's UPC arm, because it already has an established
cable business in Ireland and piggy-backing on the Hutchison/O2 network as an
MVNO would enable it to offer a combination of TV, fixed-line, broadband and
While UPC's mobile strategy is at an early stage, it has not so far taken an
aggressive approach to launching similar "quad-play" services in other markets
and has tended to avoid aggressive, price-based competition to build up its
Cable operators have so far tended to restrict their mobile services to existing
customers, of which UPC has 530,000 in Ireland. The network based operators are
chasing a market with a population of 4.6 million and SIM penetration of 5.6
million. Markets where cable MVNOs have grown strongly are usually those where
quad-play or convergent services are far more established, such as Spain,
Belgium and to some extent, the UK.