Connected Research

Union policy research in the 21st century

Orange refused Swiss merger

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Swiss competition regulators have refused permission for Orange, the smallest of three operators in Switzerland, to merge with Sunrise, the Danish-owned second largest operator, on the grounds that the proposal would undermine market dynamics and damage consumer interests.

The merged entity, for which proposals had been developed last November, would have had a market share of 38%, compared to the 62% held by Swisscom, the former monopoly operator. However, the view of the Swiss authorities was that the merged operator: ‘would have been in a collective dominant position which risked eliminating effective competition.’ Uppermost in the authorities’ mind was that it would be more advantageous in a two-company market for both to collude over pricing levels.

An appeal, which must be lodged within 30 days, is thought likely [registration required; limited viewing time]. In the meantime, a knock-on effect of the decision has been to delay a planned flotation of TDC [registration required; limited viewing time], the Danish parent of Sunrise, which is currently owned by a consortium of five well-known private equity groups (Blackstone Group; Permira; Kohlberg, Kravis, Roberts & Co; Providence; and Apax Partners). Part of the Swiss merger would have meant France Telecom, Orange’s parent, handing over €1.5bn in cash to TDC in return for a 75% share in the merged operation – without which, on the face of it, the private equity groups concerned have been unable to realise sufficient gains prior to their exit from the Danish market.

Clearly, the Swiss mobile communications market is different to the UK one and Switzerland is outside the EU, so it’s not particularly interesting to examine the reasons for the approval of a merger in one market compared to a decision to reject a merger creating a still-small entity in another. At the same time, however, and taking these two recent situations together, it is interesting that the rationale for merger approval or rejection in neo-liberal societies seems, on the face of it, not to be so much the desire to create, or achieve, conditions of high competition but to minimise the point at which there is a potential for pricing collusion.

It’s also an interesting reflection on the role of private equity groups, and their ability to extract high rewards from relatively quiet situations (the Swiss mobile market is 9m consumers) – as well as a comment on  the involvement of private equity groups in telecoms companies. If the €1.5bn was as crucial as that to their exit from the Danish market, and sufficient to postpone it when its arrival has been blocked, then it is likely that the efficiency gains sparking their involvement in TDC have not been sufficient to make their involvement in Denmark worthwhile. At least – not yet; which may in turn spark a note of further warning to Danish trade union colleagues.

It would have been even more interesting had Deutsche Telekom, in which Blackstone has a stake, had been involved in the Swiss market.

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Written by Calvin

26/04/2010 at 6:07 pm

One Response

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  1. […] merger between Orange (France Telecom) and Sunrise (Danish Telecom) in Swiss, but I found this blog particularly interesting. It is written by a researcher working with the UK trade union. In his […]


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