Telefonica/Portugal Telecom/Medi Telecom - Telecommunications
Background
Acquisition by Telefonica and Portugal Telecom of joint control over Medi Telecom, a company created under Moroccan law. Telefonica provides a full range of telecommunication services to business and residential customers. The subsidiary involved in the transaction (Ticsa) is the investment vehicle of Telefonica in the non-Spanish or Portuguese speaking countries. It is currently focused on business opportunities for the provision of Telecom services in Europe and the Mediterranean area. Portugal Telecom provides telephony services to business and residential customers and holds interests of the group in companies situated in Africa, Asia, Europe and South America. Medi Telecom has been formed to build and operate a GSM cellular mobile telecommunications business in Morocco. It will be the second operator in the provision of those services in direct competition with the incumbent operator.
Assessment
The Commission, after having concluded that the entity is a full-function JV, assessed the operation as regards both the dominance issue and the question of the co-ordination of competitive behaviour.
As regards dominance, the Commission said that it is not competent to make a competitive assessment for a company which would operate only in Morocco. However, even if the geographic market is defined as all the countries which use the GSM standard for mobile telephony, the Commission concluded the concentration would not raise dominance issues.
As regards the second question, Telefonica and Portugal Telecom have, before the establishment of the joint venture, entered into a framework agreement for developing a joint strategy for investments into telecom markets outside the EEA, in particular in South America and in the Maghreb countries. This agreement was notified to the Commission on 11 November 1997 under Regulation 17/62. The result of the Commission’s investigation was that this agreement did not reveal the existence of any grounds under Article 81(1) EC for further action.
Further, Telefonica and Portugal Telecom are active in almost all the markets for Telecom services in Spain and Portugal respectively. In view of their geographical proximity and their importance to Morocco, those markets were considered as closely related markets which fall to be assessed under Article 2(4) of the Merger Regulation. Both companies hold a strong (if not dominant) position in this market in their respective countries. However, Telefonica has not so far expanded its operation to Portugal to any important degree, neither has Portugal Telecom entered the Spanish market to any substantial degree. They are therefore potential competitors on neighbouring markets closely related to the Moroccan market. The Commission concluded that there was no reason to believe that the object or effect of the operation was the co-ordination of the parties’ competitive behaviour. (Case n° COMP/JV.23, Decision of 17 December 1999).
