The merger of Orange and MásMóvil is the beginning of the end of the price war

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Orange and MásMóvil have announced an agreement that, if closed, would mean a authentic earthquake in the telecommunications sector in Spain. A merger operation that had been cooking for some time and could completely change the landscape of our country, with fewer competitors and a change in leadership positions.

With a joint valuation of 19,600 million euros, this merger that Orange and MásMóvil will seek to close represents the most important operation in the sector in recent years. A new giant that as a direct consequence would remove Movistar from its throne as the largest operator in Spain and it would leave even more touched a Vodafone that is also looking for a buyer and sees as its rivals they are moving regardless.

A new giant Orange-MásMóvil to end the absolute dominance of Telefónica

The new entity would be a joint venture with a size big enough to challenge Telefónica for its reign in Spain. If we combine the clients and lines of Orange and MasMóvil, the resulting operator would obtain numbers and a market share ahead of the blue operator.

In the case of mobile lines, Movistar dominates with 29%, according to latest 2021 data from the CNMC, followed by Orange, Vodafone and MásMóvil with 23%, 22% and 20% respectively. A fairly even panorama that would turn around with this merger, the new operator becoming the undisputed leader in mobile lines.

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Beyond market share, the deployment of 5G has an important role. There are still pending auctions for the 26 GHz band and the resulting group will have a greater power to compete for the allocation of bands for 5G and future technologies.

Something similar happens if we look at the fiber and ADSL market share in Spain. After the merger scenario, the significant situation would arise in which Movistar would lose its leadership in internet lines for the home. Telefónica has been the historical leader in the fiber category with a big difference.

The new operator would obtain 42% of the market, surpassing Movistar’s 36%, which represents a difference of more than one million lines. In this case, unlike with mobile telephony, the difference would be less and competition agencies could raise fewer objections.

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Precisely the position of Regulation organism will play a relevant role in this historic agreement. According to the announcement of the two operators, they expect the transaction to be signed in the second quarter of 2022 and to close in the second quarter of 2023.

Despite everything, Telefónica continues to earn much more

Movistar currently has some higher revenue than all other operators combined. Despite the fact that the battle may be closer in number of lines, Movistar obtains much more income due to the fact that its offer of services is greater. There football has a very significant role, where Movistar has the rights until 2027; in contrast to a Vodafone that withdrew from the bidding long ago.

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The merger of Orange and MásMóvil would leave, following today’s numbers, an operator with 7.1 million fixed customers, 20.2 million postpaid mobile customers and almost 1.5 million TV customers. At the estimated income level, they would reach 7,500 million euros, somewhat less than the more than 8,500 million resulting from adding the current income separately. It is a significant amount, but still far from Movistar’s almost 15,000 million revenues. This difference in income would be another argument in favor of the merger in order to defend the operation against the regulators.

The direct reference for this operation is that of Virgin with O2 in the United Kingdom, resulting in an operator valued at 43,500 million euros. In comparison, the merger of Orange and MásMóvil seems small. In May 2021, the British Competition and Markets Authority approved the operation arguing that it is “unlikely that this agreement will lead to a substantial diminution of competition”. Situation similar to that in the Netherlands, where it was authorized to go from four to three operators.

On the opposite side is Vodafone, already surpassed by Orange and where Spain represents the worst country in the group in Europe. His future was rumored to go through the KKR investment fund. From Vodafone Spain they remain silent for the moment.

Fewer operators, less price war?

Upon completion of this merger, Spain would remain in the hands of three large groups. It is a long process and where the regulators will take good care that competition is not reduced, which could lead to users ending up paying the piper. In the background are the objectives of the operators of grow in size to rival its counterparts in the US and China. The telecommunications sector is increasingly global and the trend points to a consolidation of operators.

With fewer competitors, the commercial aggressiveness between the different tariffs can be reduced. In Spain there are still smaller operators such as Digi or Adamo that will seek to gain a foothold based on more aggressive prices, but reducing an operator also means reducing the chances of making a portability and receiving a capture offer by one.

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It is too early to anticipate how this announced merger may affect consumer prices. What does seem clear is that the telecommunications sector enters a new stage. A new era where Telefónica’s dominance no longer seems so clear and where it seems that we will once again have only three major operators.

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Orange and MásMóvil have announced an agreement that, if closed, would mean a authentic earthquake in the telecommunications sector in…

Orange and MásMóvil have announced an agreement that, if closed, would mean a authentic earthquake in the telecommunications sector in…

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