Bottom Line: Competition concerns could hert(z)

Elizabeth Fournier

AS TALKS between Telefonica and KPN dragged into the night yesterday, it soon became clear that regulatory concerns remain the biggest threat to any deal being agreed.

It’s no wonder the talks have been revived after years of to-ing and fro-ing between the parties ­– the German wireless market is incredibly competitive, and a merger of the third and fourth largest operators would lead to considerable operational and capex savings that would close the gap with market leaders Deutsche Telekom and Vodafone.

There would be integration costs of course, but also synergies, with some analysts predicting an additional €600,000 per year – as much as €6bn over the five-or-so years they would take to build up. But European authorities are likely to come down hard on the deal, with Brussels expected to demand concessions.

These could include both parties handing back some of their estimated 300 megahertz of spectrum – reducing the benefits once it is dished out to other players – and being forced to offer cheap access to their networks to mobile resellers or cable operators.

Neither is likely to make the deal pointless, but they could certainly make it less compelling, perhaps even fatally so. The devil, as ever, will be in the details.