EUROPEAN COMMISSION Brussels, 6.3.2020 C(2020) 1573 final PUBLIC VERSION In the published version of this decision, some information has been omitted pursuant to Article 17(2) of Council Regulation (EC) No 139/2004 concerning non-disclosure of business secrets and other confidential information. The omissions are shown thus […]. Where possible the information omitted has been replaced by ranges of figures or a general description. To the notifying parties Subject: Case M.9674 – VODAFONE ITALIA / TIM / INWIT JV Commission decision pursuant to Article 6(1)(b) in conjunction with Article 6(2) of Council Regulation No 139/20041 and Article 57 of the Agreement on the European Economic Area2 Dear Sir or Madam, (1) On 17 January 2020, the European Commission (the “Commission”) received notification of a proposed concentration pursuant to Article 4 of the Merger Regulation by which Vodafone Europe B.V. and Telecom Italia S.p.A (“TIM”) will combine into a newly created joint venture their passive mobile telecommunications infrastructure businesses in Italy (the “Transaction”).3 1. THE PARTIES (2) Vodafone Europe B.V. is part of the Vodafone Group, which operates telecommunications networks and offers telecommunications and other services in a number of countries across the globe. Within the EU, Vodafone is active in ten Member States. In particular, Vodafone Italia S.p.A. (“Vodafone”) provides mobile and fixed telecommunications services to consumers and businesses in Italy. 1 OJ L 24, 29.1.2004, p. 1 (the “Merger Regulation”). With effect from 1 December 2009, the Treaty on the Functioning of the European Union (“TFEU”) has introduced certain changes, such as the replacement of “Community” by “Union” and “common market” by “internal market”. The terminology of the TFEU will be used throughout this Decision. 2 OJ L 1, 3.1.1994, p. 3 (the “EEA Agreement”). 3 Publication in the Official Journal of the European Union No C29, 28.01.2020, p. 13. Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË Tel: +32 229-91111. Fax: +32 229-64301. E-mail: [email protected]. Vodafone Italia also owns its mobile network that consists of approximately 11 000 passive sites and related infrastructure. (3) TIM provides mobile and fixed telecommunications services to consumers and businesses in Italy. Outside Italy, TIM is mainly active in Brazil. TIM owns the passive infrastructure of its mobile network in Italy through Infrastrutture Wireless Italiane S.p.A. ("INWIT"), a publicly listed, 60.33% owned subsidiary. INWIT operates approximately 11 000 passive infrastructure sites hosting equipment mainly for mobile network operators (“MNOs”) and other providers of electronic communication services. (4) Vodafone, TIM and INWIT are designated hereinafter as “Parties”. 2. THE TRANSACTION (5) Pursuant to a Framework Agreement executed on 26 July 2019, the Parties intend to combine their passive infrastructure operations in Italy into a jointly controlled company (hereinafter, the “Joint Venture”, the “JV” or “INWIT”). (6) For this purpose, Vodafone Italia has created a separate legal entity, Vodafone Towers S.r.l. (“VOD Towers”), to which it has contributed its passive infrastructure operations. INWIT will acquire a minority participation (43.4%) in VOD Towers against the payment of a cash consideration. VOD Towers will then merge into INWIT. As a result, the Parties will each hold shares equal to approximately 37.5% of INWIT’s capital,4 whilst the remaining shares will be free-floating.5 The shareholders of INWIT will then adopt Amended By-Laws and the Parties will execute a Shareholders’ Agreement. (7) Finally, INWIT will execute with each of TIM and Vodafone Italia a Master Service Agreement (“MSA”) for the provision of hospitality services, for a term of […] years, with tacit renewal clause for an additional […] years. Under the terms of the MSAs: (a) With respect to hospitality services on existing macro-sites6 […]: (i) As result of the Transaction, INWIT will manage around 22 000 existing macro sites. […]. (ii) […]. (iii)[…]. (iv) […]. (v) […].7 […]. 4 […]. 5 This step of the Transaction is subject to the so called “whitewash procedure”, which requires the approval of the minority shareholders, to avoid the need by Vodafone and TIM to make a tender offer over the totality of the shares of INWIT. 6 For a definition of macro-sites, see paragraph (37). 7 […]. 2 (vi) […]. (b) With respect to hospitality services on new macro sites or small cells8, […]: (i) […]. (ii) […], the Parties grant INWIT the status of preferred supplier for the provision of services on new sites, […]. (c) […], each of the Parties commit to entrust INWIT the provision of hospitality services on macro sites and small cells, as well as fiber backhaul services, […]. (d) […]. (e) […]: (i) […]. (ii) […]. (8) Thus, the MSAs contain several provisions which afford preferential rights to the Parties to access the sites managed by the Joint Venture. The rationale of these provisions is to ensure that INWIT’s ability to offer hospitality to third parties on any of the sites contributed by the Parties is restricted to the space that the Parties will leave free after the Parties have activated the passive sharing. Thus such provisions are functional to the additional agreements entered into by the Parties described in Section 3.3. And in particular to the agreement related to passive sharing. (9) The MSAs will be taken into account in the assessment of the effects of the Transaction. On the one hand, these are long-term supply contracts, which arguably go beyond what normally required in a transitory period for the implementation of a transaction. On the other hand, being these binding contracts that will define the rights of the Parties over the assets managed by the Joint Venture, the MSAs will have an influence over the competitive behaviour of the Joint Venture. 3. THE CONCENTRATION 3.1. Joint control (10) Post-Transaction INWIT will be jointly controlled by Vodafone and TIM within the meaning of Article 3(1)(b) of the Merger Regulation for the following reasons: (a) First, the Parties will each hold 37.5% of INWIT’s capital and thus together hold more than 50%. 8 In respect to small cells, see paragraph (38). 3 (b) Second, the Amended By-Laws set out, in particular, the following governance principles: – The Board of Directors will consist of 13 members appointed following a list mechanism. According to this mechanism, if two lists obtain each the votes of at least 25% of INWIT capital (but less than 50% - which would be the case for the lists presented by Vodafone and TIM), such lists appoint each 5 directors. The remaining directors are appointed from the minority lists. Thus the Parties will be able to appoint each 5 directors. – A number of reserved matters, including, among others, the budget and the business plan, the nomination of the CEO and the Chairman, could be decided by the Board only with a supermajority of 9 directors. Thus, in principle, the favourable vote of directors nominated both by TIM and Vodafone is required. (c) Third, pursuant to the Shareholders’ Agreement, TIM and Vodafone have agreed to appoint each an equal number of member of the Board of Directors of INWIT. For the first term, TIM designates the CEO, while Vodafone designates the Chairman and the CFO. Subsequently, in the absence of agreement, a rotation mechanism for the designation of key managers is applied between Vodafone and TIM. Finally, a three years lock-up period is foreseen on any sale of shares of INWIT.9 3.2. Full-functionality (11) The Parties submit that the proposed Joint Venture would not be full-function, for the following reasons: (a) the primary purpose of the Joint Venture would not be the formation of an independent tower company active on the Italian market; rather it would be to hold and manage the Parties’ combined passive infrastructure assets for the benefit of the Parties, with third-party sales representing an ancillary element; (b) the Joint Venture’s third party sales are expected to remain below […]% and the Joint Venture is expected to remain economically dependent on sales to its parent companies in the long-term; (c) the governance and contractual rights of the Joint Venture’s parents will significantly limit the Joint Venture’s operational autonomy, in that the Joint Venture will need to prioritise the critical infrastructure needs of TIM and Vodafone over any commercialisation of assets towards third parties; (d) the relationship between the Joint Venture and the parent companies is not “truly commercial” in nature, as the Parties enjoy preferential super anchor tenant rights, which would not be made available on the market by an independent tower company; 9 In the past the Commission has considered that 3 years was a sufficient period of time for establishing the long-lasting change of control pursuant to Article 3 of the Merger Regulation (see Commission decision of 8 May 2014 in Case M.6905 – INEOS / SOLVAY / JV, recital 6). 4 (e) finally, the fact that the Joint Venture is listed on the Italian Stock Exchange and does have third party minority shareholders does not have any impact on the above-mentioned analysis. (12) The Commission considers that Post-Transaction INWIT will constitute a full- function Joint Venture within the meaning of Article 3(4) of the Merger Regulation for the following reasons. 3.2.1. Sufficient Resources First, the Joint Venture will have sufficient resources to operate independently on the hospitality services markets.10 INWIT is an existing company, listed in the Italian stock exchange and after the Transaction about 25% of its share capital will continue to be held by the public and INWIT will thus remain a publicly traded company.