There’s a great deal of coverage about the Orange Jazztel merger in Spain that says pretty much nothing, and this week’s is no different. Last week Orange was said to have been told that its concessions to the European Commission were insufficient to swing approval on the €3.4 billion deal, and now it seems like it has gone back with more concessions. These all come out of stories run in Reuters and there is practically no detail. Of what these concessions are – we think we understand why.
The tenor of the comments is that the Commission wants to see Jazztel remain as a cut priced alternative to Telefonica, but this seems rather egregious competition regulators are not able to set prices, just broaden competition. The European Commission allowed Liberty Global in the Netherlands to merge with Ziggo, creating a single company owning 65% of all pay TV and 50% of all broadband in that country – so why is it getting upset about Orange buying Jazztel – a deal involving far less concentration?
The combination of Orange and Jazztel will create a company with 14.4 million mobile customers (adding just 1.8 million mobile customers from Jazztel), and 3.6 million broadband lines – adding 1.56 million to the 1.96 million Orange already has.
While it may leapfrog Vodafone in broadband this is a moot point. There is a shared fiber program that has amassed 830,000 fiber customers between the two – Orange and Vodafone, and both are seen as trailing in the wake of a ruthless incumbent that has dominance in both broadband and in cellular with 5.89 million broadband homes and 17.58 million mobile customers.
In fact Jazztel only really affects the broadband equation and poor Jazztel has not always had things easy. It was forced to apply for a ruling from the local regulator, CMT to get Telefonica to unbundle its broadband lines at a price below cost, and the European Commission in 2009 had to intervene to force CMT’s hand. In the past, on both unbundling and content rights, CMT has been seen as too pro-Telefonica with is perhaps why the European Commission decided that it would handle the merger proceedings of Orange and Jazztel, thinking perhaps that CMT might simply block it as too competitive to Telefonica.
But as a result the Commission now has to go through this dance of pretending that it is taking the threat to Telefonica seriously, when it knows full well that it MUST let this deal go through or be seen to be favoring both Telefonica and Vodafone (because it allowed the ONO purchase) and acting in a protectionist fashion against a French outsider.
Jazztel was eventually allowed to unbundle Telefonica broadband lines, but Telefonica actually went further and used it position to sign a deal with JazzTel whereby both operators shared fiber access, co-investing in deployment on 3 million new homes – a deal similar to the one between Vodafone and Orange and one that will almost certainly have to be unraveled if Orange merges with Jazztel.
So the commitments that Orange has supposedly given to the European Commission are likely to be simple clarifications of its intent and come April 30, when the merger is either given the go ahead or killed, we cannot see any other outcome than one favorable to Orange.
The deal will create more of a problem for Prisa’s Canal+ than for Telefonica, in that the pay TV service has been prevented from being merged with Telefonica, and since that decision has fallen from market leadership in pay TV, to second place behind Telefonica.
Canal+ in Spain is not just a series of TV channels, but is also a pay TV service delivered 50% by DTH, and the rest over fiber, many of which are delivered by Jazztel – over its broadband lines. If Orange decides that it wants to change this content relationship and provide its own content, in a quad play, then this could reduce the Canal+ role further in Spain. And it will be up against 3 separate Quad play services from Telefonica, Orange and Vodafone, while only offering pay TV in return.
The idea that Orange would buy Jazztel and suddenly raise prices demonstrates a complete misunderstanding of the Spanish market – Orange would simply stop growing if it did that, and it is unlikely to be a genuine fear at the EU despite being reported in a number of newspapers. More likely there are more fears that the three quad players will divide of the market evenly and prevent other mobile companies such as TeliaSonera’s Yoigo, surviving the quad play era coming to Spain.