October 13, 2015 / 1:48 PM / 4 years ago

UPDATE 2-European regulators take tough line on telecoms M&A

* EU’s Ansip sides with Vestager in debate on telco M&A

* EU competition regulators seen taking a harder line

* Danish merger deal abandoned last month due to opposition (Adds investor comments)

By Julia Fioretti and Leila Abboud

BRUSSELS, Oct 13 (Reuters) - The European Commission poured cold water on calls by telecoms companies on Tuesday for a more lenient approach to mergers in the sector, fuelling fears that a wave of consolidation in the sector could come to an abrupt stop.

The EU’s digital chief, Andrus Ansip, said consolidation was “not necessarily the answer” and operators were already investing in newer networks without merging.

“Relaxing competition rules is not the answer,” Ansip told a conference held by the Financial Times and telecoms lobby ETNO. “Industry consolidation is not necessarily the answer either.”

Ansip’s comments are in line with a harder stance on telecoms mergers taken by European Competition Commissioner Margrethe Vestager who took office last year.

She recently scuppered a deal between TeliaSonera and Telenor in Denmark over concerns it would lead to higher prices for consumers, marking the first time such a deal had been blocked since telecoms companies began an M&A spree two years ago.

“Investors are still trying to understand the ramifications of the Denmark decision,” said Henrik Nyblom of Schroders Investment Management. “Hearing Mr Ansip today makes me extremely nervous about going to the office in the next few days.”

Ansip’s position came as a surprise to executives in the audience who thought that the vice-president in charge of fostering a digital single market would have been more receptive to their arguments that consolidation would permit higher network investments.

Michael Fries, who heads Europe’s biggest cable group Liberty Global which is buying a mobile operator in Belgium, said that his discussions with Vestager had been “reasonable” so far, but that companies that wanted to merge would have to offer bigger concessions than in the past.

“Structural solutions rather than theoretical ones seem to be the order of the day,” said Fries, referring to concessions such as selling spectrum or parts of networks instead of renting out capacity to rivals.

Roger Wilkinson of Newton Investment Management said Europe was still “in last place globally on attractiveness for investment in telcos.”

“I’ve heard some things today that cause concern,” he said. “I’m flabbergasted by the Danish decision — simply just don’t understand it.”

EXECUTIVES’ PLEA

The chief executives of 10 companies — Deutsche Telekom , Orange, Telefonica, Telecom Italia , KPN, TeliaSonera, Telenor, Austria Telekom, Portugal Telecom and Belgian operator Proximus — had earlier urged regulators to consider investment, innovation, efficiency and quality of service when assessing mergers.

“Our sector is in need of building scale and markets need to function at optimal levels,” the CEOs said in a statement. “We want to ensure more investment and higher value for money for customers.”

The call comes as Brussels is set to open an in-depth investigation into Three UK mobile network owner Hutchison Whampoa’s 10.3 billion-pound ($15.7 billion) deal to buy Telefonica’s O2 UK and make the combination the country’s biggest operator ahead of EE and Vodafone.

Meanwhile the UK competition regulator is vetting a $20 billion deal for national fixed line network operator BT to acquire EE from Orange and Deutsche Telekom.

Vestager’s predecessor in Brussels waved through similar “four-to-three” consolidation deals in Austria, Germany and Ireland after concessions were made which were seen as conducive to fostering sufficient competition, particularly from so-called mobile virtual network operators (MVNOs).

Fries dismissed regulatory worries about mergers driving up retail prices, something which happened in Austria, Germany and Ireland after the three big mergers.

“The argument about prices is fallacious. The idea that consumer bills are going up is because consumption is going up. They are using seven devices. There is a lot of paranoia.... That is when you get bad decisions,” he said.

A deal to join Hutchison and Vimpelcom’s Italian subsidiaries to cut the number of mobile network operators there to three from four is expected to land on Vestager’s desk next year.

The CEOs also called for lighter rules on giving network access to market competitors, saying prices should only be regulated as an exception, in a plea to EU Commissioner Guenther Oettinger who is currently reviewing the EU’s telecoms rules.

“Commercial terms for network access should be the rule ... only in such a context can we deliver faster coverage for all Europeans,” they said.

$1 = 0.6557 pounds Additional reporting by Foo Yun Chee; Editing by Keith Weir and Mark Potter

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