Vodafone’s Nowo takeover in Portugal is a no-go

• Portuguese regulator says não to Vodafone’s planned purchase of Nowo

• Group had submitted remedies four times in effort to allay competition concerns

• In the U.K., Vodafone agreed to sell spectrum to Virgin Media O2 if the Three merger goes ahead

It had all been going so well for Vodafone Group under CEO Margherita Della Valle, who has officially held this role since April 2023. 

In order to realize Della Valle’s ambition to implement a “new strategic roadmap to transform Vodafone,” primarily through “rightsizing” the group’s portfolio, the operator has sold its business in Spainfound a buyer for its Italian operations, placed its German business on a better footing, and agreed to form a joint venture in the U.K. with local rival Three.

However, Vodafone this week suffered a major setback in one of its other key markets. A plan to buy smaller player Nowo Communications was dealt a blow by the Autoridade da Concorrência (Portuguese Competition Authority or AdC), which has now ruled that the takeover will not be permitted.

Over in the U.K., meanwhile, Vodafone has made what looks to be a pre-emptive effort to address regulatory concerns over its planned merger with Three UK, forming a new network-sharing agreement with rival Virgin Media O2 (VM O2) that includes a potential spectrum sale. 

No deal, says Portugal

Vodafone Portugal has been pursuing a purchase of Nowo to bulk up its operations in the market, enabling it to better compete with larger rivals Altice Portugal (MEO) and NOS.

It originally announced the proposed acquisition of Nowo owner Cabonitel in September 2022, but the transaction was repeatedly delayed as AdC rejected remedies that were offered in an effort to allay competition concerns.

AdC now appears to have shot down any hope that the acquisition will go ahead. It said Nowo “exerts considerable competitive pressure on the other market operators,” which already show a “degree of coordinated behavior,” and said the merger would “lead to significant price increases” while enhancing Vodafone’s market power. 

In its ruling, the regulator indicated that Vodafone had submitted a total of four “commitment packages” to address the AdC’s competition concerns.

The fourth and final package included two commitments: selling the radio spectrum usage rights to new entrant Digi Portugal; and providing Digi with a wholesale offer on Vodafone’s fiber optic network.

The AdC remained unimpressed by the proposed remedies, however. It observed that offering up Digi as a potential replacement for Nowo following an acquisition was a “misconception” because Digi is already planning to enter the Portuguese market with the launch of its own services later in 2024, and is not dependent on a Vodafone deal.

It’s not clear what the next steps might be for Vodafone, or Nowo, in Portugal.

Also worth noting here is that stc Group and Patric Drahi have reportedly ended talks over a potential sale of Altice Portugal to the Saudi Arabia-based operator. 

Wheeling and dealing

In the meantime, Vodafone is still attempting to persuade regulators in the U.K. that the proposed merger of Vodafone UK and Three UK should be allowed to go ahead. As things stand, the transaction is undergoing an in-depth investigation by the Competition and Markets Authority (CMA), which is due to rule on the matter by October 12. 

Although Della Valle has said the deal should be passed without concessions at all, Kester Mann, an analyst with CCS Insight, suggested that “deep down, I’m sure she realizes this won’t be the case. These comments are just part of a negotiation. We all know remedies are the only way this deal will get across the line; it’s just a case of how stringently they are imposed.”

Indeed, Vodafone has just formed an extended network-sharing agreement with VM O2 that would see the latter acquire spectrum from the newly merged entity should the transaction go ahead. 

The two operators also highlighted opportunities for MVNOs as part of the deal. As noted by Mann, their argument is that three “high-quality, scaled wholesale competitors” would offer a better choice.

Ahmed Essam, CEO of European Markets at Vodafone, insisted that the proposed merger, “together with this agreement, will boost competition by establishing a strong third player in the UK mobile market and will improve the balance of spectrum holdings, leveling the playing field between the U.K.’s mobile operators.”

Whether or not the CMA will be swayed by Vodafone’s latest tactic to address its concerns remains to be seen. As previously noted, the CMA is seen as by far the toughest nut to crack.