Intrigue in the Med

Vodafone Malta Consolidation Creates Potential Duopoly

At first glance, this week’s announcement of further consolidation in Vodafone’s international portfolio appears to be fairly minor news. However, the proposed transaction does raise a couple of intriguing issues.

Vodafone intends to merge its Maltese business with Melita, presently owned by financial investors Apax Partners and Fortino Capital. Vodafone will take a 49 percent stake in the new entity, which is expected to have a total valuation of about €500 million.

Looking at Vodafone as a sum of its parts, its operations in Malta are worth little more a fraction of a percent of the group’s overall enterprise valuation. But such a view confirms that Vodafone is continuing its current strategy of taking a convergence-driven consolidation approach to its businesses.

Over the past year, Vodafone has announced mergers of its operations in the Netherlands and India. Part of the rationale has been down to converged broadband networks — mobile and fixed — positioning Vodafone as a multiplay provider and, significantly, no longer in majority control of its businesses. Malta continues this trend.

The second intriguing aspect of the proposed Malta deal is that it would see the market consolidate to just two mobile operators. Of course there are already countries where there are only two networks, the absolute minimum to keep the World Trade Organisation happy. The United Arab Emirates and Qatar are two notable examples.

But Malta throws up the scenario of three operators reducing to two, not five to four or four to three as has been observed and approved by regulators recently. Vodafone and its merger partners will be emphasising the benefits to consumers of better services and more investment.

Assuming Vodafone gains regulatory approval — and I would expect it to be granted, subject to concessions such as a partial return of spectrum — we will have the situation of a duopoly being created, even if it turns out to be temporary. An interesting precedent would be established.