Some big changes could lie ahead for Spain’s highly competitive mobile communications market as a planned merger and other potential acquisitions look set to disrupt the status quo.
As things stand, fixed and mobile services are provided by Telefónica-owned market leader Movistar as well as Masmovil, Orange Spain and Vodafone Spain. Masmovil and Orange have already signed a merger deal that would reduce the number of MNOs from four to three, but it’s still far from clear if the proposed transaction will get the regulatory green light from the European Commission.
Meanwhile, Romania-based Digi Communications, which provides mobile services in Spain via a wholesale arrangement with Telefónica as well as fixed-line offerings, has expressed interest in buying assets (or merger remedies) that Orange and Masmovil may be forced to sell to achieve European Union (EU) approval.
And in a latest twist, UK-based telecom investment firm Zegona Communications recently confirmed that it is in discussions with Vodafone Group on a potential acquisition of the latter’s Spanish business. The firm stressed that any acquisition is far from certain, but indicated that if it did take place, it would constitute a reverse takeover. Spanish newspaper Expansión reported that the bid could value the operator at more than €5 billion ($5.28 billion), although other reports have suggested as much as €7 billion ($7.39 billion).
The story so far
In July 2022, group rivals Masmovil and Orange announced they had signed a binding agreement to combine their operations in Spain. The aim was to create a 50:50 joint venture in the market, with a combined enterprise value of €18.6 billion ($19.63 billion).
The biggest obstacle to the merger was always going to be achieving EU regulatory approval. The European Commission is notoriously suspicious of in-country mergers that reduce the number of operators to three, famously blocking the acquisition of O2 UK by CK Hutchison back in 2016. The Hong Kong-based group is now hoping to merge its UK business with Vodafone UK, subject to approval by the UK Competition and Markets Authority (CMA).
As expected, the Commission launched an in-depth investigation into the proposed Masmovil-Orange transaction, and in June this year sent a statement of objections to both Spanish operators. In late July, the EU’s executive body said it had stopped the clock on its review of the merger and is seeking additional information from the two parties.
Little has been heard since, although it seems likely that talks are ongoing between the operators and the Commission to find an acceptable solution. It’s considered likely that some sort of asset sale will be required to push the deal through.
This is where Digi comes in with public expressions of interest in the merger remedies. The operator has reportedly promised to invest €2 billion ($2.11 billion) in Spain if it is allowed access to the assets.
On Wednesday, Expansión also reported that Digi is in talks with investors Macquarie Capital and abrdn to sell a stake in its fiber network in Spain to raise cash to invest in the country. Notably, Scotland-based abrdn has already agreed to invest in Digi Spain’s fiber-to-the-home (FTTH) network.
This brings us to Vodafone Spain, which has been a problematic operation for its UK-based owner for some time. News that Zegona is potentially interested in buying the Spanish business ignited speculation in the Spanish press that the fund could consider transferring fixed broadband customers to either Movistar or Orange Spain.
It seems likely that the European Commission will want to know the outcome of the Vodafone-Zegona discussions before it makes a decision on the Orange-Masmovil combination. According to Spanish news site Merca2, the EU could end the merger if Vodafone is acquired by Zegona and then sold off in pieces.
Useful facts
- Data from Spanish market regulator CNMC shows that Movistar held a 27.56% share of the mobile market in May 2023, followed by Orange Spain with 22.14%, Vodafone Spain with 21.69%, and Masmovil with 21.01%.
- Zegona is by no means new to the Spanish market. The company acquired Spanish cable player Telecable in 2015, and then sold it to regional player Euskaltel in 2017. Euskaltel was subsequently acquired by Masmovil in 2021.
- Also worth noting is that Zegona was founded by two former Virgin Media UK executives, Eamonn O’Hare and Robert Samuelson.