European Commissioner for competition Karel Van Miert said the planned merger between Deutsche Telekom and Telecom Italia "would merit an in depth inquiry" and said he had "a hunch it would go to a second phase", four month long investigation.
Speaking at a European Parliament economic and monetary affairs committee meeting, Van Miert said that any merger between the two companies would have to be notified to the commission, which would not accept the merger without "conditions being imposed".
"Deutsche Telekom and Telecom Italia will notify quickly and will be aware there are problems. We have to consider the existing alliance between Deutsche Telekom and France Telecom. If we have three big incumbent operators coming together, two merging, and one as a partner, it creates all kinds of problems," said Van Miert.
"Problems would be created in other member states, such as Austria, because the companies compete there with each other. There are quite a lot of hitches that need to be addressed, which must be dealt with the greatest possible transparency," he said.
Van Miert said he had other concerns relating to the lack of competition in the Italian telecoms market and said he had warned Telecom Italia one year ago that if it wished to enter into an alliance, the Italian market must become more open to competition.
"The situation has changed a lot since then, with Mannesmann and Olivetti emerging as operators - the market is moving more quickly now," he said.
Other concerns include Telecom Italia's proposed integration of its mobile unit, Telecom Italia Mobile (TIM), said Van Miert. Telecom Italia already owns 60 per cent of TIM, and was planning to acquire the remaining 40 per cent to fend off Olivetti's hostile takeover offer.
"I had concerns because this re-integration would contribute to upsetting fair competition in the mobile area. Things must be transparent between voice telephony and mobile telephony - clear separation is needed. Telecom Italia's planned reintegration of TIM will not happen if it merges with Deutsche Telekom," he said.
Van Miert said he could not anticipate the result of the commission's inquiry, but said it was a, "large case with competition conditions which other telecoms companies will complain about."
A commission source said earlier that for a clearance of the merger, Deutsche Telekom would "be very well advised" to divest its interest in the WIND joint venture with France Telecom, that holds the third Italian mobile licence and which operate a optical fibre network.
He said an announcement on the commission's first phase merger examination of Olivetti's rival offer for Telecom Italia will be made Thursday. However, he said: "It will not be a surprise. The chances are that it will be a positive decision."
The clearance of Olivetti's merger bid takes account of its commitment to divest its other Italian telecom activities if its offer is accepted by Telecom Italia shareholders, he said.
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