LONDON — Europes ability to create a pan-regional telecommunications giant is about to be put to the test.
By agreeing to buy the German and Eastern European assets of Liberty Global for €18.4 billion, Vodafone, the British telecoms player, has laid down the gauntlet to the Continents regulators to put up or shut up over its plans to create an EU-wide empire that would stretch from the United Kingdom to Romania and beyond.
The proposed deal, which still must be approved by authorities, lies at the heart of an ongoing regulatory tussle over whether Europes largest operators should be allowed to consolidate, as well as how much the regions 500 million consumers should pay for online connectivity.
It also pits Vodafone against Deutsche Telekom. If the deal is allowed to go ahead, it would make the London-based operator the largest rival to the German company in its home market, just as Deutsche Telekom is looking to build its own regional telecoms network.
“Europe is the size of the U.S., but we have four operators in each of the member states, which is increasingly unsustainable,” said Matthew Howett, a telecoms analyst at Assembly, a research firm, in London. “Were gradually shifting away from that. Its hard to see that trend stopping.”
By acquiring Liberty Globals assets, Vodafone and its chief executive, Vittorio Colao, plan to add a series of cable assets to the carriers existing mobile infrastructure to expand the companys footprint across the region.
Vodafone, already the worlds second largest wireless operator by number of subscribers behind China Mobile, would become a sizable cable competitor to Deutsche Telekom almost overnight, as well as adding to fixed-line businesses across countries such as the Czech Republic and Hungary.
The German carrier, in which the government holds a minority stake, has already voiced its opposition to the deal, saying that it would harm local competition and potentially lead to price rises for consumers. Tim Hoettges, Deutsche Telekoms chief executive, told reporters earlier this year that Vodafones expansion in Germany would create a cable television monopoly in the country.
Much will now depend on which regulator oversees the proposed acquisition.
If German authorities are permitted to rule on the deal, analysts say its unlikely that Vodafone would be allowed to swallow the domestic cable assets without significant demands to offload certain assets.
Yet if the takeover is referred to Brussels — highly likely because of the deals pan-European nature — the British carrier would expect to face fewer questions, particularly as European Commission officials have been more favorable to telecoms deals that tie mobile assets with cable infrastructure.
“There is some noise in Germany, but at the end of the day this is a decision that will be made at the EU level,” Colao told investors Wednesday. “The EU has been in favor of the creation of pan-European players.”
Even if the Commission takes the lead, German authorities are expected to lobby Brussels over any potential decision. But the proposed multi-billion euro deal will force EU regulators to decide on the shape of Europes telecoms market for years to come — particularly as carriers start to invest significant amounts of money in so-called fifth generation mobile networks.
If they force Vodafone to offload significant components of Liberty Globals assets, analysts expect that Europes telecoms industry will remain fractured, mostly along national borders, and that companies may find it difficult to invest heavily in their networks.
But if the proposed takeover is approved with few, if any, remedies, European consumers may see an eventual rise in how much they pay for connectivity as the market consolidates around a small number of region-wide players.
“We strongly believe that regulators will block or restrict the deal,” said Paolo Pescatore, an analyst at CCS Insight, a research firm. “Vodafone and Liberty Global have a relatively solid presence in the fixed-line and TV markets, so any move would cut the number of companies in both segments.”