German watchdog says a Telefonica, E-Plus merger must cut spectrum

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By Harro Ten Wolde

FRANKFURT, April 1 (Reuters) - The German telecoms network regulator wants mobile operators Telefonica Deutschland and KPN (Amsterdam: KPN.AS - news) 's E-Plus to give up some radio spectrum to safeguard competition if Telefonica (Madrid: TEF.MC - news) 's 8.6 billion-euro ($11.9 billion) acquisition of E-Plus gets approved by the European Commission.

The Bundesnetzagentur said in a planning paper on Tuesday that a combination of Germany's third and fourth mobile operators would hold too much capacity in the longer range 900 MHz and higher capacity 1,800 MHz bands, currently licensed to handle voice calls but now sought after for use in the longer term for 4G mobile broadband services.

The European Commission as the EU antitrust regulator is still deliberating on the E-Plus deal with a deadline for a decision set for May 14, following concerns for competition in the largest mobile market in the EU if the number of network operators is cut from four to three.

In addition to the proposed German market consolidation the European Commission is also reviewing Hutchison Whampoa (Berlin: HUWA.BE - news) 's $1 billion deal for its Irish business Three to take over Telefonica's O2 Ireland.

The regulatory verdicts on both deals are viewed by the mobile industry as vitally important in determining whether the Commission is minded to allow further deals that reduce the number of network operators in a national market.

In 2012 the European Commission allowed Hutchison to reduce the competition in Austria to three by buying French firm Orange (Other OTC: FNCTF - news) 's Austrian unit on condition that the new combine would help new operators enter the market.

The German network regulator said on Tuesday it was still up to the European Commission to decide on whether the E-Plus deal should be allowed but it was making contingency plans for future allocations of spectrum in Germany.

Telefonica Deutschland and E-Plus together would have 63.8 percent of the 1,800 MHz spectrum, leaving bigger rivals Deutsche Telekom (Xetra: DTE.DE - news) and Vodafone with 28.5 percent and 7.7 percent respectively.

However, the regulator said there was no need for now to reallocate the 800 MHz, 2 GHz and 2.6 GHz frequencies, currently reserved for the use of mobile data.

"The procedure to make available frequencies in the 900/1,800 MHz and others should be opened in the year 2014," the Bundesnetzagentur said in a document published on its website.

An auction of frequencies is now planned for December this year but a spokesman for the regulator said it could be postponed until 2015 and could be combined with the re-resale of licences for more 900 MHz and 1,800 MHz spectrum which are due to expire in 2016.

An auction would be the best way to give new entrants a chance, the regulator said in the document.

Last year Austria raised 2.01 billion euros ($2.8 billion) in an auction of spectrum for 4G mobile broadband services which was among the costliest in Europe to date and totalled almost four times the amount targeted.

Netherlands raised 3.8 billion euros in a similar auction at the end of 2012, with the costs causing KPN to cancel its dividend.

Rival German telecom operators can give their opinion on the Bundesnetzagentur's recommendations over the E-Plus deal up until April 11, with a final decision planned for June at the latest, the regulator said. ($1=0.7256 euros) (Editing by Greg Mahlich)