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* Deals come amid debate over health of EU telco sector
* Competition regulators view mergers on national level
* Germany, Ireland deals likely to be approved-lawyers
By Leila Abboud and Foo Yun Chee
PARIS/BRUSSELS, June 26 (Reuters) - European regulators willsoon weigh in on two telecom acquisitions worth about 11.5billion euros, in key test cases for a sector that executivesbelieve needs consolidation to counter falling sales and boostnetwork investments.
Hutchison Whampoa agreed on Monday to buyTelefonica's 02 Ireland unit for 850 million euros,which would reduce the number of operators from four to three, athreshold long seen as controversial for competition regulatorsconcerned about price rises.
Separately, Vodafone agreed to buy Germany's biggestTV provider Kabel Deutschland for 7.7 billion euros.The tie-up would create a strong integrated competitor toformer-monopoly Deutsche Telekom which is likely tobe seen as positive for competition.
But it could also set the country down a road to a riskyduopoly, with Vodafone and Deutsche Telekom each retainingcontrol of slightly more than a third of German mobile revenueand Vodafone gaining power in fixed-line communications.
Both deals are likely to be reviewed by the EuropeanCommission instead of the local authorities because they areover a certain size or have major cross-border implications.
And both reviews will provide lessons for future deals ofthese types. Italy, Germany, and Spain are four-player mobilemarkets expected to consolidate in the coming years, whilemobile giant Vodafone is weighing more fixed-line deals in Spainand Italy.
Competition lawyers and bankers interviewed by Reuters saidthey believed antitrust regulators would ultimately approve thetwo deals, perhaps with conditions imposed to protectcompetition, such as spectrum divestments or wholesale access tomobile and fixed competitors on fair terms.
Nevertheless, the reviews will be a reckoning for theindustry because they come during a broader fight betweentelecom operators and European leaders over whether the region'sregulations have sapped the companies' ability to invest in newfaster networks and compete globally.
"Given the background music of the debate over whetherEuropean telecom groups need greater scale, we have a uniqueopportunity with these parallel deals to test the receptivenessof antitrust regulators to this tune," said Peter Alexiadis, aBrussels-based lawyer with Gibson, Dunn & Crutcher LLP.
"Both decisions will be keenly looked at by telecomscompanies to see if regulators are already willing to take intoconsideration overall long-term industry dynamics and healthinstead of the traditional focus on the short-term impact onprices."
LOBBYING
Before the recent deals, big telcos had lobbied hard for theEuropean Commission to take a softer line on mergers, especiallywithin countries, to reduce the number of operators and reverseseveral years of declining sales.
Their hopes were raised in February when Neelie Kroes, EUcommissioner for the digital agenda, backed the idea as part ofher effort to pass reforms this year to foster a "single market"for telecom services in the region.
Yet top competition regulator Joaquin Almunia remainedsceptical, arguing in a February speech that there was noevidence that operators would invest more in networks or offerbetter services to consumers if they scaled up.
According to antitrust law, his office must evaluate mergerimpact on a national basis, not based on broader industryissues.
"Until such a single telecoms market comes into life, thecommission will continue to assess competition cases, includingmergers, in the framework of national markets," said CecilioMadero, a senior antitrust official at the European Commission,at a conference Tuesday.
On that basis, Hutchison's proposed purchase of Telefonica's02 business in Ireland is likely to pose bigger antitrust issuesthan Vodafone's mega-deal in Germany, competition lawyers said.
Hutchison's 3 brand would vault from fourth to second placewith a market share of 37.5 percent, just behind Vodafone's 39.4percent and ahead of Meteor's 19.7 percent, according to datafrom the Irish regulator.
Hutchison is prepared for the fight because it went througha similar review in Austria last year when it bought largerrival Orange to take a very competitive market of roughly 8.4million people to three players.
Approval was secured after a long review but regulatorsexacted a heavy toll, including reserving spectrum in a mobileauction due this autumn for a new competitor. Hutchison had togive local cable operator Liberty Global favourable wholesaleterms to start a mobile service, and divest assets and spectrum.
In Ireland, lawyers say Hutchison will seek to avoid suchharsh remedies by arguing that the market will remaincompetitive with three players. Since fourth generation mobilespectrum was sold in Ireland last December, regulators won't beable to bring back a fourth player if consolidation is approved.
Key to the regulatory review will be mobile pricing.According to an analysis of mobile pricing in 27 Europeancountries by consultancy Rewheel, Ireland is a "progressive"mobile market because operators Meteor and 3 have loweredsmartphone plan prices and give large mobile data allotments.
But Ireland mobile prices remain quite high compared toother competitive countries like Britain, Sweden or Austria,said Rewheel's Antonios Drossos. "The worry is that after themerger, prices would stay high or go higher," he added.
Hutchison did not immediately reply to messages left seekingcomment on what remedies if any it would offer in Ireland. Thecompany said on Monday it was confident the deal could becompleted in six to nine months.
Meanwhile, Vodafone's proposed buy of Kabel Deutschland inGermany poses a new and different set of issues to regulatorsbecause it marries two mainly complementary businesses andnetworks - one in mobile and the other in fixed.
The deal would not affect mobile market share, with DeutscheTelekom and Vodafone each retaining 34 percent of mobile revenueat the end of 2012, followed by KPN and Telefonica with16 percent each. In fixed telephony and broadband, Vodafonewould jump from 10.2 percent share to 18.9 percent after thedeal, according to Exane BNP Paribas.
Such market share figures are not likely to spook antitrustregulators, so they will focus on the question of the newcompany's relationship with Deutsche Telekom, said FrederikWiemer of law firm Heuking Kühn Lüer Wojtek.
The new company would be more independent of Deutsche Telekombecause it will no longer have to rent fixed broadband linesinto homes. Vodafone today owns some of its own broadband lines,but very few.
"Germany would have two big companies able to offerall-included bundled packages to consumers, which ispro-competitive long-term," said Wiemer. "So in the end thepositive effects could outweigh the negative impact fromconcentration in the broadband market."
