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    Will it join Starmap?

    Telefónica has said it will leave the FreeMove alliance, as requested by the European Commission, to enable it to complete its purchase of O2.

    A statement from the European Commission said that it was the issue of roaming that had most concerned it. With Telefonica in FreeMove and O2 in the Starmap alliances, the Commission was worried that O2 would in effect be joining the  FreeMove alliance, which would leave the UK with no operator not in the FreeMove alliance, other than Vodafone. (and, presumambly 3, although they seem not to count).

    To get the deal through, the Spanish giant said it would leave FreeMove, but will it join Starmap? Starmap has until now been an alliance of smaller operators. The presence of a global player like Telefonica would change its nature radically. And there would be a lot of integration and back office changes to turn Telefonica’s roaming contracts from Freemove into Starmap.

    Additionally, it is fair to ask, what will happen to those FreeMove customers under Telefonica management? FreeMove works by offering corporate multinationals a single point of management whilst offering “seamless” roaming services across it member networks.

    We might also ask what the reaction of other FreeMove members and customers will be, now they are denied the automatic reach of Telefónica’s territories in their roaming agreements.

    Below is the European Commission statement.

    “The Commission’s market investigation identified concerns closely related to the functioning of the alliances of network operators created to improve international roaming services.

    “Telefónica is currently a member of the so-called FreeMove alliance, where it co-operates with the other three largest incumbent network operators in the EEA (France Télécom, France; Telecom Italia, Italy; and Deutsche Telekom, Germany). O2 participates in the Starmap alliance, where a range of smaller telecommunication companies co-operate under a similar but albeit more loosely structured framework.

    “The Commission found that the merger would therefore give rise to competition concerns on the market for international roaming services. At the wholesale level, telecommunication companies buy international roaming from each other in order to allow their mobile telephony subscribers to make and receive calls while travelling abroad. In particular, the FreeMove alliance was founded in order to concentrate the exchange of international roaming business among its members.

    “The Commission’s market investigation showed that following the proposed transaction, O2 would in the normal course of events be expected to move from the Starmap alliance to the FreeMove alliance, or align its behaviour with that of the latter, as a consequence of its dependency on Telefónica. As a result, O2 would in all probability be less ready to exchange international roaming traffic with non-FreeMove members. This would imply significant cost increases for those companies, in particular in the UK where no international roaming provider independent of FreeMove would remain after the transaction (except for the fully integrated Vodafone group).”

    Commitments
    “To address the Commission’s concerns and in order to avoid an in-depth investigation, Telefónica committed itself to leave the FreeMove alliance as soon as possible and not to re-enter that alliance without the Commission’s prior consent in the coming years. With the termination of its alliance membership the serious doubts outlined above are removed and the Commission can approve the merger.”

    In the meantime, the Commission is continuing its own-initiative inquiry, opened in 2004, into Starmap and FreeMove to ensure that that they are compliant with EC Treaty rules on restrictive business practices (Article 81).