Vodafone, Hutchison deals to be scrutinised by the European regulators

European regulators will soon weigh in on two telecom acquisitions worth about 11.5 billion euros, in key test cases for a sector that executives believe needs consolidation to counter falling sales and boost network investments.

Hutchison Whampoa agreed on Monday to buy Telefonica’s 02 Ireland unit for 850 million euros, which would reduce the number of operators from four to three, a threshold long seen as controversial for competition regulators concerned about price rises.

Separately, Vodafone agreed to buy Germany’s biggest TV provider Kabel Deutschland for 7.7 billion euros. The tie-up would create a strong integrated competitor to former-monopoly Deutsche Telekom, which is likely to be seen as positive for competition. But it could also set the country down a road to a risky duopoly, with Vodafone and Deutsche Telekom each retaining control of slightly more than a third of German mobile revenue and Vodafone gaining power in fixed-line communications.

Both deals are likely to be reviewed by the European Commission instead of the local authorities because they are over a certain size or have major cross-border implications. Both reviews will provide lessons for future deals of these types. Italy, Germany, and Spain are four-player mobile markets expected to consolidate in the coming years, while mobile giant Vodafone is weighing more fixed-line deals in Spain and Italy.

Vodafone and Hutchison will soon be under the scanner

Competition lawyers and bankers have sated that they believed antitrust regulators would ultimately approve the two deals, perhaps with conditions imposed to protect competition, such as spectrum divestments or wholesale access to mobile and fixed competitors on fair terms.

Nevertheless, the reviews will be a reckoning for the industry because they come during a broader fight between telecom operators and European leaders over whether the region’s regulations have sapped the companies’ ability to invest in new faster networks and compete globally.

“Given the background music of the debate over whether European telecom groups need greater scale, we have a unique opportunity with these parallel deals to test the receptiveness of antitrust regulators to this tune,” said Peter Alexiadis, a Brussels-based lawyer with Gibson, Dunn & Crutcher LLP.

The European regilators have stated that both decisions will be keenly looked at by telecoms companies to see if regulators are already willing to take into consideration overall long-term industry dynamics and health instead of the traditional focus on the short-term impact on prices.

Reuters