EU Opens Probe Into Orange's Acquisition of Jazztel--Update

By Tom Fairless 

BRUSSEL--Antitrust regulators in the European Union have opened an in-depth probe into Orange SA's EUR3.4 billion ($4.19 billion) bid for Spanish broadband and cellphone operator Jazztel SA, throwing down a hurdle to a deal that would significantly boost the former French telecom monopoly's market share in Spain.

The probe comes amid a debate over whether to recast EU competition rules to encourage deal-making across the region's telecom sector, which remains largely fragmented along national lines.

The European Commission, the EU's top antitrust authority, said it was concerned that the deal would lead to higher prices for Spanish customers of fixed Internet and fixed-mobile triple play deals.

The transaction, which was announced in September, would almost double Orange's market share in broadband Internet access in Spain, leapfrogging Vodafone Group PLC to become the country's second-largest provider in that segment. Both companies trail the market leader, Telefónica SA.

The commission said the merger might "change the merged entity's incentive" to compete with Telefónica and Vodafone, the two remaining nationwide operators, in the market for fixed Internet access.

It said its concerns were heightened by the growing popularity of fixed-mobile triple play offers--comprising a combination of fixed voice, fixed Internet and mobile services--which can only be offered by operators with both fixed and mobile networks.

Orange said it was still confident of a "favorable outcome" for the review. It said it had factored an in-depth probe into its calculation for when the deal would close, which it still expects to occur in the first half of next year.

Spain is Orange's second-largest market, accounting for around 10% of the group's revenue.

Orange last month suggested a remedy aimed at addressing the commission's concerns about the deal, but it was judged to be "insufficient," the regulator said. A final decision on the case is due by April 24, 2015.

Consolidation has been heating up in Europe's telecom market over the past year, reducing the number of operators in each market. Earlier this year Vodafone in Spain purchased Ono SA, a midsized cable operator, for EUR7.2 billion. Germany and Ireland have also seen similar moves where small players have fallen prey to bigger rivals--Telefonica's EUR8.6 billion acquisition of Germany's E-Plus and Hong Kong-based conglomerate Hutchison Whampoa's EUR780 million purchase of O2 Ireland.

Both of the latter deals faced in-depth probes by the commission, which demanded tough concessions amid concerns they could lead to higher prices for consumers.

The EU's new executive team, led by former Luxembourg prime minister Jean-Claude Juncker, entered office last month with a pledge to create a digital single market by breaking down national silos in telecoms regulation and competition law.

Ruth Bender in Paris and Christopher Bjork in Madrid contributed to this article.

Write to Tom Fairless at [e-mail]

Access Investor Kit for Telefonica SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=ES0178430E18

Access Investor Kit for Orange SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=FR0000133308

Access Investor Kit for Jazztel Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GB00B5TMSP21

Access Investor Kit for Vodafone Group Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=GB00BH4HKS39

Access Investor Kit for Orange SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US6840601065

Access Investor Kit for Telefonica SA

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US8793822086

Access Investor Kit for Vodafone Group Plc

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US92857W3088

Subscribe to WSJ: http://online.wsj.com?mod=djnwires