BRUSSELS--The European Commission Thursday said it had sent out
a formal complaint to Telefónica SA's German unit over its EUR8.55
billion ($11.70 billion) bid for Royal KPN NV's E-Plus, one which
raises serious concerns over the deal's impact on competition in
Germany's mobile-phone and wholesale market, according to people
familiar with matter.
"I can confirm that the commission has sent yesterday the
statement of objections in relation to the proposed acquisition of
E-Plus by Telefónica," said commission spokesman, Antoine
Colombani.
He said it was a "preliminary step" which sets out the
commission's "preliminary concerns."
The complaint, which was widely expected to be sent out this
week, warns such a deal could harm competition and lead to price
increases for German mobile-phone users as well as for the
wholesale market, said people familiar with the discussions.
EU regulators are also expected to voice concerns that the
merger could hamper competition in the mobile virtual network
sector.
The high-profile deal, announced last July, would create
Germany's largest wireless carrier by customers, creating an entity
of a size similar to the German units of Deutsche Telekom AG and
Vodafone Group PLC.
The merger would lower the number of operators in Germany from
four to three, where the wireless market is worth around EUR22
billion. It would see Telefónica and E-Plus command a large slice
of the spectrum, allowing them to boost the volume of calls and
data traffic.
Telefónica confirmed it had received the document, known as a
Statement of Objections.
"We remain optimistic that we will be able to convince the
authorities to approve of the deal as a third strong mobile network
operator will foster competition in Germany to the benefit of the
customers," said Simon Lloyd, a company spokesman. "As a combined
entity we would be better placed to challenge the market leaders in
Germany with attractive products and prices".
Mr. Colombani said it was up to the company to respond "to the
objections, to make its views known."
Under EU rules, Telefónica could also request a hearing to set
out its case and address some of the concerns raised by regulators
and other telecommunications firms.
The commission launched an in-depth probe into the deal on Dec.
20, and has said it would make a decision by May 14. The opening of
a formal complaint doesn't prejudge the outcome of an
investigation.
Mobile-phone companies have been keeping a close eye on the
regulatory review of this case as it is seen as a yardstick for
further consolidation in Europe's fragmented telecom sector.
Leading operators have called on the commission to ease the EU's
merger control rules, saying that the regulatory process impedes
major deal making.
But the EU's antitrust chief, Joaquín Almunia, has urged firms
to go for cross-border mergers rather than national ones, fearing
that this could hit both prices and quality of service.
The commission's areas of concern in the Telefónica case were
set out in a confidential questionnaire sent out earlier this month
to telecom companies, in which it asked about competition and
pricing in both the retail and wholesale mobile market in
Germany.
The document, which was seen by The Wall Street Journal, also
sought to find out how the deal would affect frequency allocation
in Germany, and whether it would be possible to roll out a 4G
network on either the 800 MHz or 1800 MHz radio band. Radio waves
are the most valuable asset for a wireless operator, with different
spectra used to carry traffic and reach customers in either dense
urban areas or in the countryside.
The questionnaire also suggested that regulators were examining
network sharing agreements, the allocation of radio bands for the
rollout of mobile 4G and entry barriers to the German market.
The questionnaire also indicated that regulators are considering
the option of making the parties dispose of key radio spectrum to
gain regulatory approval.
Laurence Norman and Frances Robinson contributed to this
article.
Write to Vanessa Mock at vanessa.mock@wsj.com
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