Telecom firms to make pre-merger concessions

Date: 27/05/1999

By Peter Chapman

NORWAY'S Telenor and Sweden's Telia are set to make key concessions to win European Commission approval for their planned merger, which would create a telecoms giant worth €40 billion.

Insiders close to the state-run operators say they have already told the Commission's merger task force that they would be willing to address "certain" areas where the two firms' activities overlap.

But a source in Stockholm said these concessions would ignore far-reaching concerns about cable and access to local networks voiced by the Commission and rival companies since the merger was notified earlier this month.

" Concessions are part and parcel of notifications," said a Telia source. "You can imagine that if we have overlaps in our respective markets we would undertake commitments, although it would be stretching it for me to say where these are."

Cable was identified recently as the key stumbling block to the merger by a spokesman for Acting Competition Commissioner Karel van Miert.

Telia is Sweden's largest cable operator with 1.3 million sub-scribers, while Telenor supplies services to around 300,000 households.

" Cable is the heart of the matter," said the spokesman. "With it being an obvious alternative infrastructure, we are less than delighted to see the two companies' respective cable assets merged."

However, sources inside Telia and Telenor claim they have not been told to sell off their cable networks by the Commission's merger task force.

The use of updated cable TV networks as an alternative to traditional telephone lines has been a key issue for the Commission over the past year.

It has urged telecoms firms to hive off their cable interests into companies with clear and separate accounting, in order to boost competition.

But Telia claims cable has been in a unit run separately from the Swedish incumbent "since time immemorial". The situation in Sweden was held up as an example to the Germans when the Commission was reviewing the cable sector last year. That is why, say sources, "it would be stretching it" for the Commission to demand a sell-off.

Moreover, company insiders dismiss as a technical irrelevance the demands which have been made by Danish rival Tele-Danmark for greater access to local telecoms infrastructure.

The Danish operator has told the Commission it wants the same rights in Sweden and Norway as Telenor and Telia enjoy in Denmark.

In Denmark, rival operators have the right to rent the 'last mile' of the network direct to consumers' homes from the leading Danish operator. This saves them the cost of building an alternative network and allows them to add extra services to those supplied by the network owner.

But a Stockholm source rejected these arguments, claiming: "The Swedish market is like a wide-open barn door for competitors."

The comments come as the Commission prepares to rule on the Scandinavian phone market deal early next month.

The institution's undermanned competition policy department was spared the job of investigating what would have been the biggest telecoms alliance of all time this week when Deutsche Telekom failed in its bid to merge with Telecom Italia.

However, Italian information technology and communications kit company Olivetti - which emerged as victor in the battle to take control of the lumbering Italian operator - has not ruled out the possibility of agreeing a merger with another international rival. Olivetti won its battle for control of its far bigger Italian sister after paying €30.83 billion to increase its shareholding to 51.02%.

Its move does not face any EU regulatory headaches, as Olivetti's hostile bid for a controlling share of Telecom Italia's stock was provisionally approved by the Commission late last month.

This followed Olivetti's promise to pull out of the Oliman telecoms joint venture with German industrial group Mannesmann.

Under the terms of its pledges to the Commission, Olivetti has undertaken to offload its shares in Oliman - which includes the fixed telecoms venture Infostrada and mobile phone operator Omitel - to Mannesmann.