EC Investigates KPN's E-Plus Sale to Telefonica

The European Commission, as expected, is investigating Royal KPN's agreement to sell its German mobile company, E-Plus, to Spain's Telefonica.

The deal is a key test of appetite among EC regulators to allow further consolidation in the  European telecom market. Service providers and now some regulators argue that fragmentation and lack of scale is one reason Western European telecom companies are losing money and avoiding investment in next generation networks.

If the EC does not approve the deal, most observers believe an expected merger wave would fail to happen, leaving the industry to struggle.

The EC review occurs at a time when major potential consolidation is being talked about in the U.S. market as well, especially about acquisition targets T-Mobile US and Time Warner Cable.

It is possible any acquisitions of either company would similarly test regulator appetite for major market share restructuring in both the mobile and cable TB businesses.

Also lurking in the background is another possible test of regulator willingness to allowDirecTV and Dish Network to merge.

"The Commission has concerns that the transaction would remove an important competitive force and change the merged entity's incentive to exert significant competitive pressure on the remaining competitors," the EC has said about the proposed acquisition of E-Plus by Telefonica.

The EC has until May 14 of 2014 to decide on the deal.

While the EC historically has been concerned about promoting competition in European markets, and though most would say those policies have succeeded, industry and regulator attention now has shifted to include policies that might reinvigorate investment in next generation networks, which most would say is lagging in most countries except the United Kingdom.

In both the United States and much of Europe, regulator decisions, certainly to be contentious and difficult, will have a decisive impact on next generation network investment, competitive climate and consumer welfare.

Among the very-practical questions is whether mobile markets will be sufficiently competitive, and whether investment will be stronger, in markets with three, not four major service providers.