Andrew McMillan of Pinsent Masons, the law firm behind, said that the strict approach competition regulators within the EU are taking towards “in-sector or horizontal consolidation” in the telecoms market may discourage foreign investment in the EU market.

McMillan said that a lack of foreign investment may prevent EU telecoms companies from operating at sufficient scale and profitability to be competent to invest appropriately in recent digital infrastructure.

McMillan was commenting subsequent the European Commission cleared Vodafone and Liberty Global to create a joint venture company in the Netherlands.

Mobile network operator Vodafone has agreed to market its consumer fixed line business in the Netherlands as piece of the deal to overcome competition concerns expressed by the Commission. Liberty Global trades as Ziggo in the Netherlands and offers both fixed line and mobile services to consumers.

“The Commission assessed the transaction against the backdrop of current access obligations in the Netherlands and had concerns that the merger, as initially notified, would possess reduced competition in the markets for fixed multiple frolic services and for fixed-mobile multiple frolic services in the Netherlands. The merger would possess removed Vodafone as a player with the potential to exercise a strong competitive constraint in these markets,” the competition authority said. “This would likely possess led to higher prices and reduced competition on the markets.”

“The divestment entirely removes the overlap between the activities of Vodafone and Liberty Global in the markets for the provision of fixed and fixed-mobile multiple frolic bundles and so addresses the identified competition concerns. The Commission therefore concluded that the transaction, as modified by the commitments, would raise no competition concerns,” it said.

Telecoms expert Reg Dhanjal of Pinsent Masons said that the tie-up of Vodafone and Liberty Global in the Netherlands “highlights the current focus of the telecoms and cable sectors on the provision of quad-frolic services – fixed telephony, broadband, mobile and TV”.

Dhanjal and McMillan said the Commission’s decision to approve the joint venture was not surprising. They reflected on the “tough stance” the EU’s competition commissioner Margrethe Vestager has taken to telecoms mergers. They highlighted that the circumstances of the Vodafone/Liberty Global deal are similar to another major corporate transaction in the European telecoms market which won regulatory approval earlier this year, and varied to another planned merger which failed to win clearance.

“The Commission blocked the planned Three/O2 merger, which would possess involved consolidation of two major mobile operators in the UK that are in direct competition with unit another,” McMillan said. “That decision was backed by the UK’s Competition and Markets Authority (CMA) and Ofcom. In contrast the CMA approved BT’s acquisition of EE as it identified a relative lack of overlap between the businesses in telecoms markets, despite the sheer scale of the merged business drawing concern from the companies’ rivals, including Vodafone.”

“befondof the BT/EE deal, the Vodafone/Liberty Global joint venture will involve a degree of vertical consolidation. Vodafone’s pledged divestment will remove the only horizontal overlap, but there will unmoving be synergies in the context of mobile backhaul, for instance. This decision, considered also in the context of the Three/O2 ruling, indicates that regulators are prepared to sanction a degree of vertical consolidation in the telecoms market but will adopt a tough stance in honor of in-sector or horizontal consolidation,” he said.

“However, that approach is short-termist. It is too focussed on immediate pricing implications for consumers and fails to recognise the importance of scale to telecoms businesses. Those companies are being relied upon by to deliver next-generation digital infrastructure but are hitting constraints as they seek to mature their businesses. Consolidation is necessary to aid those businesses attain levels of profitability to support investment in recent infrastructure,” McMillan said.

“The approach may also dissuade prospective investors in the EU telecoms market from buying EU-based telecoms operators. Whilst there is scope for vertical consolidation the most likely buyer will be unit who is already active in the relevant jurisdiction. The reluctance to permit in-sector or horizontal consolidation may result in reduced interest in mobile telecoms M&A deals in Europe. This lack of investment will possess implications for the development and deployment of recent broadband services,” he said.