EU Regulatory Changes Make Telecom M&A More Difficult

Ofcom, the U.K. telecom regulator, has for years made its opposition clear to mergers that reduce wireless competition to three operators from four

Allan C. Nichols, CFA 29 March, 2016 | 2:24PM

While the EU regulator's non-approval of telecoms companies Telenor's and TeliaSonera's proposed merger of their Danish operations increases the risk that wireless consolidation to three operators from four will be frowned upon, we don't think all future deals are dead. Looking at the previously approved deals in Austria, Ireland, and Germany with an overlay of the Herfindahl index provides insight into the potential approval of the currently proposed deals in the United Kingdom, Italy, and France. We believe there is about a 50/50 chance of the U.K. deal being approved, a one in four chance in Italy, and virtually no chance in France if it goes to the European Union.

However, if it stays in France, it has about a two in three chance. If the deals are approved, they should benefit all of the firms' stocks. Regardless of the decisions, we think Telefonica's stock is the best of the group to own.

Why We Disagree With Ofcom's Objections

Ofcom, the U.K. telecom regulator, has for years made its opposition clear to mergers that reduce wireless competition to three operators from four. For this very reason, Telefonica and CK Hutchison requested their proposed merger be reviewed by the EU. Ofcom subsequently requested jurisdiction over the proposal from the EU, but was denied. With this rejection, Ofcom president Sharon White sent documentation to the EU on why the merger should be rejected and also wrote to the Financial Times.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
BT Group PLC115.00 GBX0.17

About Author

Allan C. Nichols, CFA  is a senior stock analyst and international investing specialist with Morningstar.

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