19 December 2022

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The Good Lobby Profs urge DG Competition to review planned acquisition of Vodafone Hungary by 4iG and the Hungarian state

by TGL Profs

The planned acquisition of Vodafone Hungary by the Hungarian telecom company 4iG and the Hungarian state, expected before the end of this year, raises important competition law and rule of law issues, as it can be cleared without any competition law review. The Good Lobby Profs turned to the European Commission (DG Competition) to effectively review the case.

 

The Good Lobby Profs submitted detailed information showing that this merger has a high likelihood of significantly impeding effective competition on several telecommunication markets and therefore would require a careful competition law review. This acquisition is still subject to completion, but the Parties announced that they aim at completing the transaction by the end of 2022. Normally, the transaction would have to be notified only to the Hungarian Competition Authority. However, the Hungarian government already announced that it will declare the acquisition of so-called national strategic importance and in that case the acquisition can be cleared without any competition law review. 

 

The fact that the Hungarian government has been systematically (mis)using this public interest exception in national merger control for the past years undermined legal certainty and eliminated effective competition and market oversight while harming citizens and businesses.

 

Hence, the Good Lobby Profs asked the Commission to write an invitation letter to the Hungarian Competition Authority for a so-called referral process. Despite the lack of so-called EU dimension of the merger, Article 22 of Regulation 139/2004 (as interpreted by the General Court in the recent case T-227/21 Illumina/Grail) enables the European Commission to review this merger. Given this exceptional (already announced) treatment of this merger by the Hungarian Government, only the European Commission could effectively review this case. 

 

Read the full submission here.

 

Background

The information provided in this document concerns the planned acquisition of Vodafone Hungary by the Hungarian telecom company 4iG and the Hungarian state. On 22nd August, 2022, Vodafone Group Plc (“Vodafone”) announced that it had entered into heads of terms with 4iG Public Limited Company (“4iG”) and Corvinus Zrt (a Hungarian state holding company) in relation to the potential sale of 100% of Vodafone Magyarország Távközlési Zrt (“Vodafone Hungary”) for a total cash consideration equivalent to an enterprise value of HUF 715bn (€1.8bn).  The deal is expected to create Hungary’s second largest telecoms operator. 4iG will hold a majority 51% stake while the Hungarian state will hold 49%.

 

This acquisition and the underlying transaction is still subject to completion of confirmatory due diligence and the Parties entering into binding transaction documentation. The Parties announced that they are targeting completion of the transaction by the end of 2022. Normally, the transaction would likely be required to be notified only to the Hungarian Competition Authority. However, it is likely that once the deal is final, the Hungarian government will declare the acquisition of national strategic importance in a few days, and in that case the merger can be cleared without any competition law review. Hence, the planned acquisition is expected to fall outside of the Hungarian Competition Act and merger review by the Hungarian Competition Authority.

 

Therefore, we asked the Commission to write an invitation letter to the Hungarian Competition Authority and potentially to other national authorities for a so-called referral process. 

 

Despite the lack of so-called EU dimension of the merger, the legal (procedural) framework enables the European Commission to review this merger. The legal basis for such re-attribution of a merger case is Article 22 of Regulation 139/2004 as interpreted by the General Court in the recent case T-227/21 Illumina/Grail. In sum, we argue that as the four cumulative criteria for referrals as laid down in Article 22 of Regulation 139/2004 and interpreted by the General Court in T-227/21 Illumina/Grail are fulfilled in this case, the Commission should review the planned merger.

 

Article 22 constitutes an effective corrective mechanism in light of the principle of subsidiarity by protecting the interests of the Member States and in light of that principle, the Commission as the most appropriate authority must deal with the case. Should the Commission decline to review the planned acquisition and it is implemented, then it will not be subject to any examination while it will significantly affect competition in Hungary. It is thus essential to act at EU level.

 

Our submission provided an in-depth assessment of the likely effects of the planned acquisition on several telecommunications markets in Hungary and how it will significantly harm competition.  This assessment shows that in the past the Hungarian government already declared a number of telecom mergers of “national strategic importance”, which enabled 4iG to effortlessly acquire two big telecommunication companies in 2021-2022 without fearing any competition law review. These completed mergers already resulted in very concentrated markets. Should 4iG now acquire Vodafone Hungary, that is not only the second largest mobile telecommunication operator but is also the second largest competitor in wholesale and fixed retail markets, most Hungarian telecommunication markets will effectively become duopolies with a small fringe. Therefore, there are horizontal concerns both because of loss of infrastructure competition and increased chance of tacit collusion. Moreover, vertical concerns arise as after the merger the ability and incentive to foreclose access to basic infrastructure needed to entry and expansion will be heavily increased. 

 

The telecommunications sector is of major importance to the European economies, to citizens’ daily lives and for EU integration, in particular. The quality of telecommunications services affects the well-functioning of the internal market and hence the standard of living of EU citizens. The well-functioning of telecommunications markets as a network industry is key for EU growth and competitiveness. Therefore, regulatory oversight is needed to both promote competition in the provision of services, regulate access to infrastructure and create an integrated EU market and safeguard consumers’ access rights to services with a public nature. 

 

Moreover, telecommunications are closely related to media and the economic activities in these two sectors are all interconnected in a complex supply chain. In Hungary, this relationship is especially crucial, as a very large concentration was already created in the media market by similar mergers of national strategic importance in the course of 2018 that were exempted from competition law review and resulted in significant harm.

 

This planned acquisition also raises important issues of the rule of law. The fact that the Hungarian government has been systematically (mis)using this public interest exception in national merger control (Hungarian Competition Act Article 24/A) for the past years undermined legal certainty, eliminated effective market competition and created highly concentrated markets. In our opinion, this planned acquisition and the underlying legal framework enabling it encroaches on citizens’ and businesses’ economic rights and well-being as well as the core value of free and fair competition as a central pillar of EU integration.