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Italian Telco Merger to be Investigated by European Commission

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The European Commission has opened an in depth investigation to assess whether the proposed joint venture between the telecommunications activities of Hutchison and VimpelCom in Italy is in line with the EU Merger Regulation.

The Commission has expressed concerns that the transaction could lead to higher prices, less choice and reduced innovation for mobile customers in Italy.

The transaction would combine Vimpelcom's subsidiary WIND with Hutchison's subsidiary H3G, respectively the third and fourth largest operators in the Italian mobile telecoms market. It would reduce the number of mobile network operators in Italy from four to three. It would also create the largest player in terms of the number of subscribers, followed by two similar-sized mobile network operators, TIM and Vodafone.

The Commission's initial market investigation identified the following main concerns:

First, H3G and WIND currently compete against each other in the retail mobile telecommunications market in Italy. The Commission has concerns that the transaction would remove two important competitive forces and that the joint venture would have limited incentives to exercise significant competitive pressure on the remaining competitors. This would lead to higher prices and less investment in mobile telecommunications networks.

Second, the transaction would reduce the number of networks that host mobile virtual network operators. Prospective and existing MVNOs would have less choice of host networks and hence a weaker negotiating power to obtain favourable wholesale access terms.

Third, the reduction in the number of competitors following the merger risks weakening competitive pressure and increasing the likelihood that MNOs would coordinate their competitive behaviour and raise prices on a sustainable basis on the retail and wholesale markets.

The Commission will now investigate in-depth the transaction to determine whether its competition concerns are confirmed. The Commission will in particular examine the extent to which the parties are close competitors, the market incentives that would be faced by the joint venture and the potential response of its competitors.

The opening of an in-depth investigation does not prejudge the outcome of the investigation.

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Tags: european commission  vimpelcom  hutchison 3g  vimpelcom  wind  Italy