Telenor and TeliaSonera have cancelled plans to merge their Danish operations after failing to secure the backing of the European Commission.
The pair announced their decision to withdraw from the deal on Friday, raising serious questions for other planned telecoms tie-ups across the European Union.
"The companies have not been able to agree with the European Commission on acceptable conditions to go ahead with their plan to create a robust mobile operator," the telcos said in a statement.
The telcos agreed to merge their Danish operations into a 50:50 joint venture in December last year, creating a single entity with a mobile market share of around 40% and with the scale to invest in the business and to compete more effectively.
Despite the fact that the deal would reduce the number of players in the country’s mobile market to three from four, the firms were confident they would close the transaction this year.
The European Commission’s announcement in April that it would conduct an in-depth investigation into the merger and its impact on competition came as no great surprise and, as has become customary in deals of this kind, Telenor and TeliaSonera last month proposed a series of remedies designed to safeguard competition; these reportedly included the divestment of spectrum and an offer of network access to alternative players.
Alarm bells started to ring this week when Reuters claimed the companies had been forced to offer more sweeping remedies. The newswire reported that they would look to sell a 40% stake in their infrastructure business to a new player and offload Telenor’s BiBob prepaid unit.
The telcos did not comment on that report on Friday, saying simply that "the merger discussions have now reached a point where it is no longer possible to gain approval for the proposed transaction."
Thus, the deal is off.
"In the interests of both companies, we felt it necessary to act decisively," said Kjell Morten Johnsen, Telenor’s head of Europe.
"Telenor and TeliaSonera will continue to compete and deliver products and services in the Danish market through our respective original, and still fully up-and-running Danish operations," he added.
Meanwhile, his opposite number at TeliaSonera, Robert Andersson, reiterated the companies’ views on the benefits of the now defunct deal.
"Since the beginning, we have been strong advocates for the need to increase investment levels in Denmark," he said. "In our view, creating a market player with the scale and ability to compete and invest would ensure that customers and businesses would benefit from better quality, speed and coverage."
Telenor and TeliaSonera said they will continue to review their strategic options in Denmark.
The failure of the deal could have a wider impact on the European telecoms market.
Analysts at Standard & Poor’s on Wednesday said that the eyes of the industry were on Denmark, since the Commission’s reaction to the Telenor/TeliaSonera plan would provide greater visibility on its stance on consolidation.
"There is renewed uncertainty at this stage about the [position] of the new competition authority," said Xavier Buffon, director, corporate ratings at S&P.
Margrethe Vestager, who beca me the EU’s competition commissioner in November, has given hints that she is taking a harder line on M&A.
It could be that the commissioners are "rethinking their stance about in-market consolidation," Buffon warned.
It looks like he was right, which leaves the other ongoing telecoms mergers in a difficult position.
Friday’s announcement is not good news for Hutchison, whose 3UK arm is in the process of taking over rival O2, and whose 3 Italia business has inked a joint venture agreement with Wind; in both cases the deals will reduce the number of mobile network operators in the respective countries to three from four.
