The European Union has granted conditional approval for Orange SA’s Spanish unit and Masmovil Ibercom SA to merge, paving the way for the creation of Spain’s largest mobile operator. The decision, which reduces the market players from four to three, marks a significant development in the telecommunications industry and could set a precedent for future consolidation.

The approval comes with conditions, including the agreement to sell spectrum licenses to rival Digi Communications NV and offer wholesale roaming services. These commitments aim to address competition concerns raised by the merger and ensure that market dynamics remain robust.

Margrethe Vestager, the EU’s antitrust chief, emphasized that the commitments offered by the parties will maintain competitive pressure in the market, particularly through Digi’s role as a significant mobile virtual network operator in Spain.

The combined enterprise value of Orange and Masmovil is estimated at €18.6 billion ($20 billion), surpassing former state monopoly Telefonica SA. The agreement with Digi includes the sale of spectrum licenses worth €120 million and the option for a future wholesale agreement on Orange’s network.

The divestment of mobile spectrum to Digi will enable the company to establish its own mobile network, while the optional national roaming agreement will facilitate its expansion across Spain. Without these remedies, prices could have seen a significant increase, according to the commission.

While regulators do not stipulate a specific number of firms in national phone markets, deals reducing competition to three have faced scrutiny. However, this decision could signal a shift in regulatory approach towards industry consolidation, especially amid increasing infrastructure investments and wireless spectrum demands.

Despite recent setbacks in consolidation efforts, such as the EU’s veto of CK Hutchison Holdings Ltd.’s bid for O2 in the UK, and the examination of Orange’s stake in Belgian peer Voo SA, the approval of the Orange-Masmovil deal with appropriate remedies demonstrates a pragmatic approach towards fostering competition while allowing strategic mergers to proceed.

Source: Adapted from Bloomberg report “Orange Wins Conditional EU Nod for $20 Billion Masmovil Deal“.