LONDON (Reuters Breakingviews) - Margrethe Vestager is sending mixed signals to scale-hungry European corporates. The competition commissioner may wave through a Dutch mobile merger, Reuters reported, but impose concessions that could sink Siemens and Alstom’s rail tie-up, says the FT. That’ll disappoint politicians and bankers hoping to build EU champions to counter America and China.
A year ago, it looked like the decisions would be the opposite way round. Deutsche Telekom’s acquisition of Tele2’s Dutch arm, announced in December 2017, violates the commission’s tacit rule against telecom deals reducing the number of operators to three from four. The apparent reversal shows that the commission can be flexible, but only up to a point. Siemens and Alstom’s rail merger was backed by heavyweight politicians like French Economy Minister Bruno Le Maire, and was part of a broader Franco-German effort to strengthen European ties.
Vestager’s thinking may nonetheless make sense in the context of the two industries. True, having three rather than four mobile operators could raise prices. But the newly created third operator would still only be about half the size of the Netherlands’ number-two player VodafoneZiggo, using 2017 sales, and nowhere near former national telephone monopoly KPN. The merged operators might invest more in faster 5G networks. If the triopoly hikes prices too much, the regulator could always invite a fourth player into the market later on.
Such remedies would probably be harder in the rail sector, given its complexity. And there’s little doubt the Siemens-Alstom deal could have handed the new company unpalatable pricing power. In the 2016-17 financial year, the pair accounted for 93 percent of major spending on signalling equipment by Britain’s Network Rail.
While the commission’s approach makes sense in the context of Europe, the bigger question is whether it does at a global level, where Europe’s companies are still subscale. America and China have a handful of giant telecom carriers; Europe has dozens of local players. Chinese train giant CRRC will generate 31 billion euros of revenue next year, on Refinitiv data, compared with almost 18 billion euros for Siemens and Alstom’s rail businesses using Deutsche Bank estimates for the year ending in September 2019. The risk is that the pair are eventually outspent on new technologies. Global competition isn’t central to Vestager’s mandate; it probably should be.
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