TeliaSonera and Telenor fail to get Danish merger approved

* TeliaSonera (Amsterdam: 1087941.AS - news) , Telenor (Oslo: TELFUT.OL - news) could not agree terms with EU regulators

* Operators continue to review strategic options in Denmark

* Decision raises worries for approval of other mergers in Europe (Adds comments from EU Commission, consultant, background)

By Olof Swahnberg and Leila Abboud

STOCKHOLM/PARIS, Sept 11 (Reuters) - TeliaSonera and Telenor have abandoned their planned merger in Denmark because of stiff opposition from European regulators, raising concerns that larger mobile telecom deals pending in the UK and Italy might also run into trouble.

The decision, announced by the two companies on Friday, is the first time that regulators have scuppered such a deal since European mobile network operators embarked on an acquisition spree in early 2013.

The rejection also caused investors to worry that EU Competition Commissioner Margrethe Vestager was taking a harder line than predecessor Joaquin Almunia, who had approved similar mobile consolidation deals in Austria, Ireland (Other OTC: IRLD - news) and Germany.

Vestager, who took office last November, said on Friday that Teliasonera and Telenor had not done enough to allay her concerns that reducing the number of mobile network operators in Denmark would have damaged competition and risked higher prices being charged to consumers.

"What we were looking at were very serious concerns. To me it was necessary to have a fourth mobile operator," Vestager told reporters on the sidelines of a conference.

However, she said there should be no conclusions drawn with regard to the two merger deals in the UK and Italy, which would also reduce the number of mobile network operators in those markets to three from four and which Vestager will examine in the coming months.

One distinction for the abortive Danish deal is that Teliasonera and Telenor already shared a network in Denmark, so had fewer options to divest parts of the network to a new player to win over regulators, analysts said.

Nevertheless, competition lawyers said Vestager appeared to be laying out a different framework for remedies to maintain competition than her predecessor.

In Austria, Ireland and Germany the Commission had required the merging companies to wholesale network capacity to rival service providers known as mobile virtual network operators (MVNOs).

But in Denmark Vestager indicated that she wanted the creation of a new rival network owner, said Antonios Drossos, a consultant at Rewheel, which has opposed past mobile consolidation deals.

"I believe that the Commission will no longer accept MVNOs as an effective remedy in a merger situation," he said.

Peter Alexiadis, a competition lawyer at Gibson, Dunn & Crutcher, said Vestager's position on Denmark, which was her first mobile merger case, was similar to the one she took earlier this year on Orange (Taiwan OTC: 4554.TWO - news) 's acquisition of Spanish fixed-line broadband company Jazztel (Other OTC: JAZTF - news) .

In that case the Commission forced Orange to sell off Jazztel's fibre broadband network in five major cities and rent out capacity nationwide so as to allow a new company to begin offering broadband services while owning at least some of its own infrastructure.

"What is clear from this case is that the Commission is now looking for viable network-based entry," said Alexiadis.

"What is certain is that this will render the defence of future mobile cases more difficult and the results will be more prone to uncertainty."

Shares (Berlin: DI6.BE - news) in Danish market leader TDC (Copenhagen: TDC.CO - news) fell 6.5 percent following Friday's news, while Telenor was down 1.5 percent, TeliaSonera was off 0.8 percent and the Stoxx Europe 600 European telecoms sector index was down 2 percent.

Attention will now move to the UK where Hutchison Whampoa has agreed to buy Telefonica (Amsterdam: TA6.AS - news) 's O2 UK for 10.25 billion pounds ($15.8 billion), a combination that would make Hutchison (HKSE: 0013-OL.HK - news) 's Three UK business the second-biggest of the UK's three remaining network operators.

Vestager's team will examine that deal and the merger in Italy of Hutchison's 3 Italia with Vimpelcom (NasdaqGS: VIP - news) 's Wind Telecommunicazioni.

Meanwhile, UK competition regulators are vetting a separate $20 billion deal whereby the country's fixed line broadband market leader BT is set to acquire the biggest mobile network operator, EE, from Orange and Deutsche Telekom (Xetra: 555750 - news) .

John Strand, a consultant to Nordic telecoms companies said there was now a risk that one of those deals would fall through.

"If you can't go from four to three operators in a tiny market like Denmark, then why allow England and Italy, which are much bigger, to consolidate?"

Simon Weedon, an analyst at Citigroup (NYSE: C - news) , put the chances that Hutchison would complete its UK mobile deal at 50-50.

"I think Hutchison is prepared to do a lot in England to get regulatory approval but the commission has set down a tough line with the Denmark decision," he said.

NO TAKERS

A major sticking point for the Danish deal was that Teliasonera and Telenor could not find a company willing to provide the new competition that the regulators wanted.

The two companies had announced the deal last December, saying the combination would boost margins and reap cost savings in their toughest market.

Following objections from the regulators, the companies had offered two sets of proposals to help create new competition, according to European Commission documents seen by Reuters.

But TeliaSonera Chief Financial Officer Christian Luiga said the operator could not concede any more as there would not have remained enough economic value for them. ($1 = 0.6480 pounds) (With additional reporting by Foo Yun Chee in Brussels and Annabella Nielsen in Copenhagen; Editing by Greg Mahlich)