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Summary

The Netherlands is set to soon become a converged three-player fixed, mobile, and TV market, if regulatory and competition authorities approve Deutsche Telekom's (DT's), the parent of T-Mobile Netherlands, acquisition of Tele2, which both operators announced in December 2017. Following clearance of the merger, the market will be left with three major players all offering fixed and mobile products. The incumbent KPN and VodafoneZiggo lead the TV market, while the new combined company will be comparatively small. Like in the other European countries – Three–O2 in UK, Telenor–Telia in Denmark – where the recent mergers were not allowed, the European competition authorities might say "four good, three bad" in the Dutch mobile market as well. The deal will increase the spectrum holdings of the combined company, which will help in boosting network capacity. The merged company will be the alternative to the Dutch quad-play duopoly KPN and VodafoneZiggo. T-Mobile and Tele2 had a combined market share of 22.6% of Dutch mobile subscriptions, according to 3Q17 data from Ovum's WCIS database, compared to 55% for KPN and 22% for Vodafone.

The merger creates a viable challenger to the current FMC duopoly KPN and the newly formed VodafoneZiggo

DT and Tele2 agreed to combine T-Mobile Netherlands and Tele2 Netherlands in December 2017. As per the agreement, T-Mobile will own 75%, and Tele2 will hold a 25% share in the combined company and receive a cash payment of €190m ($232m) upon closing. Based on 3Q17 numbers, the combined company will have more than 5 million mobile subscriptions and 0.5 million fixed broadband customers. The combined annual revenues of around €2bn and synergies are estimated at net present value of more than €1bn, which DT expects will enable the new player to offer "disruptive customer propositions." The enlarged company will continue to operate as T-Mobile Netherlands and will also use the Tele2 brand.

Liberty Global (Ziggo) and Vodafone completed the creation of their Dutch 50:50 joint venture in December 2016 to focus on offering fixed and mobile services. The EC's decision on the merger's clearance was conditional on Vodafone divesting its consumer fixed-line business in the Netherlands. T-Mobile Netherlands acquired Vodafone's fixed consumer business, Vodafone Thuis, in December 2016. Thus, T-Mobile entered the Dutch fixed market for the second time, after having sold its broadband unit Online.nl to M7 Group in December 2013. The combined company VodafoneZiggo is operating under both the Vodafone and Ziggo brands and had 3.2 million fixed broadband customers, and 5 million mobile subscriptions by September 2017.

Merger of T-Mobile and Tele2 would still only be on par with VodafoneZiggo and be much short of KPN in mobile market, so it is hard to see any possible reason for regulatory objection to this deal based on competition grounds. Similarly, in the fixed market, both the operators are very small compared to KPN and VodafoneZiggo. But in all the recent merger objections in the Europe, the decisions were almost inclined towards maintaining the number of mobile operators in each market at four, so a bit of hurdle on this one is expected. If the deal gets approved, there could be similar consequences in the other European countries.

The deal will increase T-Mobile's spectrum holdings, by adding Tele2 licenses in the 800MHz and 2.6GHz bands, which will help in boosting network capacity. The combined company would further have much stronger distribution capabilities with the combination of existing T-Mobile's shops and Tele2's online sales channel. DT's strategy is to develop fixed and mobile capabilities in each of its geographical markets, the re-entry into fixed market and the merger with Tele2 would enable it to become fully converged quad-play provider in the Dutch market. "We've started our journey to disrupt the Dutch market and we will be creating a viable and strong attacker of the duopoly KPN and VodafoneZiggo," said Thorsten Langheim, head of the group development segment of DT overseeing T-Mobile Netherlands.

Before completing the transaction, T-Mobile Netherlands will spin out its mobile tower and rooftop assets into a separate legal entity which will be fully owned by DT. The deal is expected to close in 2H18. If the deal gets approval from the competition authorities, it is conceivable that the Dutch market will end up moving toward three fully converged operators: KPN, VodafoneZiggo, and the combined entity of T-Mobile and Tele2. This will enable the combined entity to consolidate its position as the alternative to the two quad-play providers within the Dutch market.

Appendix

Author

Laxmareddy Vittalapuram, Analyst, Europe

laxmareddy.vittalapuram@ovum.com

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