New poison pills in mergers: the role of the Italian financial law



More than a year ago, on 22 September 2015, prior to any official filing of the operation before the EU authorities, the Italian government approved the proposed merger deal between the country’s second and third largest mobile communications operators Wind and 3 Italia, provided that the ‘industrial profile’ of the deal would ensure the development of local mobile technologies, that it would also confirm that there would be no job losses and that it would avoid a shift of operations outside the country. All of these stipulations were set forth as was the government’s prerogative, as set by the ‘golden share’ rulings applicable to the strategic field of communications.

With this deal winning government clearance, the two operators then proceeded, somewhat uncertainly, to file the details of the proposed merger with the EU Commission, generally contrary to arrangements between mobile operators capable of deterring consumer choices and eliminating prospective wholesale operators active in the field (as rejected merger operations of O2/Three UK or Telenor/Telisonera in Denmark may demonstrate).

Clearance from the European Commission was issued on 1 September 2016, under condition of a set of remedies. The merger was acclaimed as a ‘once in a lifetime’ exception, such that EU antitrust commissioner Margrethe Vestager was forced to provide a series of explanations in press conferences as to the certainties of the operation under competition principles.

One of the required conditions set for ensuring sound competition by the EU Commission was the entrance of a fourth new operator into the Italian mobile space. This new entrant was identified as Iliad SA, the low cost French mobile operator. Iliad SA will be required to acquire assets and frequencies from Wind and 3 Italia jointly in order to rebalance available resources and be granted access to transitional spectrum agreements in view of developing proprietary networks.

For the EU Commission, the transfer of the spectrum blocks and mobile base station sites represents a crucial element for newcomers in terms of developing and rolling out services providing retail mobile services to consumers and offering wholesale access services to virtual network operators. Wind/3 will thus need to: (i) divest a certain amount of the joint venture’s mobile radio spectrum from different frequency bands (900MHz, 1800MHz, 2100MHz and 2600MHz); (ii) provide the transfer or relocation of several thousand mobile base station sites to the new mobile network operator; and (iii) ensure that a transitional agreement (for access to 2G, 3G and 4G, as well as other new technologies) is reached which will allow the new mobile network operator to use the joint venture’s network to offer customers nationwide mobile services until the new mobile network operator has built its own mobile network.

Although all of these conditions were met and approved by the new entrant in its commitments, Iliad was hit by a coup de théàtre upon closing: the Italian 2017 Financial Law, which is a new form of poison pill.

The Italian 2017 Financial Law, approved by the government in mid-October, envisages a renewal of the 3G and 4G frequencies allocated to mobile operators without auction until 2029. In this respect, for the sole renewal of frequencies previously assigned to Wind/3, Iliad will be liable for an extra €300m in 2017 and €450m for the sale of any assets under existing purchase arrangements.

The frequencies at stake all naturally expire in 2018 and the government expects to generate around €1.8bn from operators during the renewal round, all of which will relate to 2017.

This will likely affect the estimated budgetary figures of all companies going forward. In many respects, the Italian mobile market revolves around the household-centric value proposition, and the success of a new entrant depends greatly on its ability to offer an effective and attractive quadruple play offering, as well as digital convergence, e-wallet services and mobile payments perspectives.

Distribution costs are also a major consideration. Access to the distribution chain of SIM vendors is crucial, as the recent failure of low cost virtual operator Bip Mobile clearly testifies to. Prior to winding down and exiting the market quietly, Bip Mobile had filed a successful claim with the Italian Antitrust Authority on the cartel limitation affecting the mobile distribution chain. In light of that, on 22 December 2014 the Italian Antitrust Authority imposed mandatory commitments to Wind and TIM imposing a limitation on the incentives offered to multi-brand retailers in view of ensuring competitive offerings on single sales points. While reserving termination rights on its vendors, Wind and TIM were forced to modify sales clauses previously imposed to distributors in a clearly oligopolistic market.

These conditions should now assist Iliad in successfully accessing the commercial arena. Yet the Bip Mobile debacle means the situation is still highly contentious, as no practical implementation of the conditions set by the antitrust authority has ever been tested on a level playing field.

Unlike its partner 3, Wind is also the third largest fixed line-convergent operator. We will need to see to what extent Iliad will be willing to pay a new price for sharing the burden of Italian operations. Offering new services and quadruple play packages appears crucial, as in such fields the antitrust conditions imposed on the company’s competitors do not apply.


Fabrizio Cugia di Sant’Orsola is a partner at Cugia Cuomo & Associati. He can be contacted on +39 06 9603 8100 or by email:

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Fabrizio Cugia di Sant’Orsola

Cugia Cuomo & Associati

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