Competition in the Spanish Telecommunications Sector: Mergers, Football Rights, and Other Regulatory Issues

Pedro Callol, Nov 11, 2015

Spain is the fourth largest Euro zone economy with a domestic market of 47 million people. The recent recession has hit Spain hard, more than many other national economies in Europe. The telecommunications industry has weathered the crisis by competing fiercely in costs and consumer-oriented offers. One feature of the national market is the omnipresence of a historic incumbent, Telefónica, which is also one of the world’s largest operators and number three in Europe by turnover.

Notwithstanding the presence of this giant, the market is considerably dynamic and it offers opportunities for international players, with various companies having gained a foothold in recent years. There have been a number of important mergers and acquisitions lately, as well as purely financial transactions and IPOs, with companies attempting to gain scale, better profitability levels, and access to finance.

A key event in Spain from the regulatory standpoint was the creation a couple of years ago of a new regulatory Authority, the National Competition and Markets Commission, by the NMCC Act. The NMCC gathers the role of national regulatory Authority in various network industries (including the telecommunications), as well as the role of national competition Authority. This means that, at least in theory, decision making at both the regulatory and competition enforcement levels should be better coordinated, with some cross-consultation procedures having been eliminated (e.g., the report from the regulatory Authority previously required prior to a merger control decision in the telecommunications sector) and most importantly with competition and regulatory decisions emanating from a single Authority. Reality is more complex than that though, and it is perhaps fair to say that the current catch-all structure is not unanimously applauded by the legal and business community.

An additional important regulatory development specific to the telecommunications market was the approval of a new Telecommunications Act a year ago. The Telecommunications Act is the main piece of sector legislation in Spain, dealing with the granting of licenses and authorizations, access to network, spectrum policy, and enforcement. In overview, an attempt has been made to cut red tape and costs. For instance, not all operators are required to fund universal service obligations (only those which gross income exceeds the Euro 100 million benchmark). Market definition for the purposes of establishing ex ante obligations to operators with significant market power is entrusted to the NMCC.

The telecommunications market is a priority for the NMCC, as will be seen below. Some key questions remain on future regulation, which will likely influence the future of the industry. For instance, it is worthwhile mentioning the current controversy surrounding prospective regulation by the NMCC of the new generation fibre networks. The NMCC is considering maintaining compulsory network sharing of new generation fibre to the home in most of the territory (with the exception of the cities where there are three or more suppliers, which happens only in very few instances) with Telefonica having threatened to interrupt investment in next-generation networks should this regulatory model prevail. This discussion is likely to be solved this year and it could have a dramatic impact on the shape adopted by investment in new networks.

In this short article we would like to touch briefly on three points: (i) the increasing importance of media content as a key component of the retail offerings of bundled telecommunications services, (ii) prominent competition matters in the sector in Spain, and (iii) mergers and acquisitions. In order to keep the conversation limited, we are not discussing other issues that have been hot, such as the recent spectrum allocation for digital television.

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