Three and Wind Agree Joint Venture

Italy Becomes Latest Market to Cut Mobile Operators

Italian_flag_lYesterday’s announcement that Hutchison and VimpelCom are to merge their Italian assets means that another European market is poised to see a reduction in mobile operators.

The coming together of two strugglers will instantly create a new market leader with 31 million customers. The deal should benefit both companies, which have been treading water for years while lacking the scale to effectively challenge dominant providers Vodafone and TIM.

The only surprise is that it’s taken so long to reach an agreement. As rivals cleaned up at the premium end, Three and Wind resorted to scrapping with each other over less-profitable customers. This has created something of a two-tier market, which CCS Insight has long considered ripe for consolidation.

The coming together of the third- and fourth-placed operators mirrors the situation in Germany, where Telefonica’s move to acquire E-Plus was allowed by the European Commission (EC) in 2014.

However, regulation could inevitably be the stumbling block to any deal — recent comments emanating from Brussels suggest growing concern over moves to cut the number of competing providers. The EC appears particularly uneasy at developments in Austria, where evidence points to an increase in mobile prices following Three’s purchase of Orange in early 2013.

New EC competition chief Margrethe Vestager believes that mergers can be harmful for investment and innovation, and may push for stringent remedies. This could also set alarm bells ringing over Hutchison’s planned acquisition of O2 in the UK.

In a move that’s likely to be aimed at pre-empting Brussels’ concern, the companies talked of “significant additional investment” and “unmatched network quality”. It may be that this vision helps their cause with regulators, as Italy badly trails leading European markets in deployment of LTE and super-fast broadband.

The new entity will become one of Europe’s largest mobile operators, but its strategy in fixed-line and multiplay is unclear. CCS Insight has repeatedly doubted the sustainability of a pure-play mobile approach, which could be particularly vulnerable in an Italian market poised for strong growth in bundled services.

Offering fixed-line as well as mobile would be inconsistent with Three’s approach in other markets. But Wind has a near-20 percent share in fixed-line broadband that could afford lucrative cross-selling opportunities. Exiting this market would be a risky strategy.

Big questions remain as to how things will pan out in Europe’s fourth-largest market.

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