Hutchison Whampoa hopes to buy O2 UK for $15 billion

The pairing-off of major U.K. telecommunications players continues: On Friday, Three’s Hong Kong owner, Hutchison Whampoa, said it was now in exclusive takeover discussions with Telefónica’s O2.

The merry dance began last November, when fixed-line player BT (the company that once spun out what became O2) said it wanted to get back into the mobile game, and was considering buying either EE (joint-owned by Germany’s Deutsche Telekom and France’s Orange) or O2. Hutch waded in days later, indicating that it was also mulling a purchase of EE or O2.

In December, BT formally announced that it was in exclusive talks to pick up EE for just under $20 billion. So it’s no surprise to see Hutch now doing the same with Three – a move that would reduce the number of network-owning British carriers from four to three.

As things stand, Spain’s Telefónica would get £9.25 billion ($13.86 billion) in cash for O2, which it would no doubt use to pursue further consolidation opportunities in other markets – last year it bought KPN’s German E-Plus subsidiary, for example.

It could also look forward to “deferred upside interest sharing payments of up to a further £1 billion in the aggregate payable after the cumulative cash flow of the combined businesses of Hutchison 3G UK Limited and O2 UK has reached an agreed threshold,” according to the statement.

All this depends on due diligence, agreement on terms and regulatory approval. At the EU level, digital economy commissioner Günther Oettinger says he’s keen to see more consolidation in European telecoms, so as to create bigger regional rivals to U.S. carriers. Though this, of course, would be a larger Hong Kong-owned player.

Telefónica already got rid of its U.K. fixed-line business in 2013, selling it to BSkyB for $300 million.

EU digital economy chief downplays “Google tax” reports

Ever since Germany’s Günther Oettinger became the new EU commissioner for the digital economy, with copyright reform as part of his brief, he has been making noises about getting Google to pay some kind of “levy” for using European “intellectual works.”

I and others have been interpreting this as a desire on Oettinger’s part to extend the so-called ancillary copyright concept – where news aggregators such as [company]Google[/company] have to pay royalties to publishers for using snippets of their text in search results – across Europe. Google’s not the only company that’s affected but, given that it has more than 90 percent market share in European search, ancillary copyright is often called the “Google tax” in the EU.

From events on Wednesday, it seemed clearer than ever before that this was what the commissioner was after. But according to subsequent pronouncements from Oettinger and sources in the Commission, he doesn’t want to extend rules that don’t work.

Oettinger met with members of the European Parliament’s copyright working group to talk with parliamentarians (MEPs) about his plans for a new EU-wide copyright proposal, scheduled for 2015. And Julia Reda, the Pirate Party’s sole MEP, seemed to come away from the meeting in an incandescent mood.

“At today’s debut meeting of the European Parliament’s copyright working group, digital Commissioner Günther Oettinger expressed his wish for an EU-wide ancillary copyright law for press publishers, citing it as an example area of copyright where action was required at an EU level,” she said in a statement.

Reda pointed out that the two existing examples of ancillary copyright being rolled out nationally, in Germany and in Spain, had both turned out badly. In Germany, local publishers were forced to grant Google free use of their text snippets and thumbnails after the company delisted them from Google News and traffic to their websites predictably plummeted. In Spain, the severity of the local ancillary copyright law has created an even worse situation – the publishers, who lobbied for the law, can’t grant Google free access even if they want to, and now the company has axed Google News in Spain altogether, again hammering their traffic.

“By pursuing an EU-wide ancillary copyright law for press publishers, Oettinger is ignoring the recent spectacular failure of similar laws in Germany and Spain,” Reda said in her statement. “They did not fail because they were implemented at the wrong level, but because the idea itself is wrong-headed.”

However, Oettinger said on Twitter that there would be no extension of national rules across the EU:

One source within the Commission told me that Oettinger only wants new EU copyright legislation to “cover those areas where national legislation has no impact,” and suggested he had mentioned the experiences of Germany and Spain “as negative examples.” Meanwhile, another source said the Commission “will monitor the implementation of the law to see whether it delivers the objectives set by the Spanish government.”

No sweet spot

It is not clear to me at all that this means Oettinger doesn’t want an EU-wide ancillary copyright law. It could be that he does want such a law, but he doesn’t want it to be as ham-fistedly implemented as it was in Germany and Spain. If that is the case, I struggle to see where the sweet spot between those implementations might lie. The German implementation was too ineffective to give the hard-lobbying publishers what they wanted — Google successfully called their bluff — and the Spanish implementation was so idiotically heavy-handed that it amounted to a publishers’ suicide pact.

The problem is, as Reda said in her statement, that “legislative restrictions on free linking do not lead to better compensation for journalism, but to increased barriers to access for the public and losses for publishers and authors.” Companies such as Google – and European aggregators too, let us not forget – are under no obligation to keep linking to sources that lose them money. What’s more, those links benefit publishers by giving them traffic that they can convert into advertising revenue. It’s not like they lose out in any way from being linked to with snippets of their text.

To my mind, there are two underlying motivations behind the big publishers using their political leverage to push for ancillary copyright laws. The first is that they want money for nothing. The second is that the internet erodes their power. Once, they had loyal readers who bought their paper each day, but now aggregators such as Google News have made their articles options on a long and diverse menu.

Many casual readers are now driven to stories because of their relevance, not because they appear under a certain brand, and this new world gives newer, smaller publications a chance to shine. That’s awful for powerful press barons, but great for readers, great for media diversity, and consequently great for democracy.

Let’s hope that Oettinger is taking away the right lesson from the German and Spanish debacles as he formulates his copyright proposals (and sorry to paraphrase Reda again here, but she’s right on this): European citizens and online businesses benefit from barriers coming down, not barriers going up.

BT in talks to buy EE for $20 billion

BT, the company once known as British Telecom, said on Monday that it is now exclusively negotiating a possible £12.5 billion ($19.6 billion) takeover of the mobile carrier EE, a joint venture of Germany’s Deutsche Telekom and France’s Orange.

BT and EE are now in a period of exclusivity that will last for “several weeks”, during which time BT will “complete its due diligence and for negotiations on a definitive agreement to be concluded.”

The former state telco had previously said that it was considering a purchase of either EE or O2, which is owned by Spain’s Telefonica. Since that revelation in late November, Three – the smallest U.K. mobile operator, owned by Hong Kong’s Hutchison Whampoa – was also reported to be contemplating a buy of EE or O2.

“The proposed acquisition would enable BT to accelerate its existing mobility strategy whereby customers will benefit from innovative, seamless services that combine the power of fibre broadband, wi-fi and 4G,” BT’s statement read. “BT would own the UK’s most advanced 4G network, giving it greater control in terms of future investment and product innovation.”#

According to the statement, the £12.5 billion would be a combination of cash and BT shares, which would leave Deutsche Telekom with a 12 percent stake in BT, and Orange with a 4 percent stake.

It will be interesting to see how this plays out with the regulators. BT is not currently a significant mobile player (it runs a virtual network that resells EE connectivity) so the buy would not in itself reduce the number of mobile carriers in the U.K., but if Hutchison went ahead with an O2 buy, that would bring the number of network operators down to three.

The new EU commissioner for the digital economy, Günther Oettinger, is quite keen on encouraging consolidation in the European telecoms sector, so as to create more powerful telcos that can better compete on the international stage.

“We firmly believe that convergence is the future of telecommunications in Europe. Customers want fixed-mobile converged services from a single provider,” Deutsche Telekom CFO and EE chairman Thomas Dannenfeldt said in a statement. “The proposed transaction with BT offers the chance to further develop our superbly positioned mobile business engagement in the UK and to take part in the outstanding opportunities of an integrated business model.”

Google axes News in Spain in response to royalty law

Google has decided to shut down Google News in Spain. The decision follows the passage of a law in July that obliges any news aggregator quoting snippets of text or using thumbnails of images from a copyrighted publication to pay royalties for doing so.

In a blog post late Wednesday, [company]Google[/company] News chief Richard Gingras said the service makes no money because Google doesn’t advertise on it, so it would be unsustainable to continue operations in Spain. With the law set to come into effect in January, Google News will shut there on 16 December.

Spain is not the first European country to pass a so-called ancillary copyright law – Germany did so in March 2013 – but its version is much more heavy-handed.

In the German law, publishers can choose whether or not they want to grant a news aggregator such as Google News the right to use snippets of their copyrighted text in its search results without compensation. This is how the German publishers ultimately caved in: Google refused to pay royalties, so it stopped listing the articles of publishers who belonged to the relevant rights collection group. The publishers in that group ended up granting Google the right to use their text without having to pay up, but did so grumbling that the case demonstrated Google abusing its market power (never mind that other German aggregators had done precisely the same thing.)

Under the Spanish “Google tax” law, that simply wouldn’t be an option. There, the levy is an “inalienable right”, meaning publishers couldn’t give Google News a free pass even if they wanted to. As Weblogs CEO Julio Alonso recently wrote, that applies even to those who publish their content under a free-use copyleft license, such as Creative Commons.

Slippery slope

Google’s struggles with European publishers predate these ancillary copyright laws of the last couple years, and on two occasions it was able to stave off anything as drastic as legislative changes. In late 2012, the company struck a deal with Belgian publishers through which it appeared to buy millions of dollars’ worth of advertising in the relevant publications. And in early 2013 it established a fund for French publishers, to “support digital publishing initiatives.”

Now, following the German and Spanish examples, the idea of the “Google tax” may spread, as the European Commission’s recently-installed digital economy chief, Günther Oettinger, has been making noises about applying it across the EU. The German commissioner, who has the copyright reform file, recently said: “When Google takes intellectual works from within the EU and works with them, then the EU may protect those works and demand a levy from Google for them.”

The issue is also a major strand in the Google search antitrust case although, as I have previously argued, it is a copyright issue that bears little relation to the other elements of the case, and it should be considered separately. The other elements of the case are about harm to consumers and Google’s direct rivals, while this element is only about giving the publishers money for nothing.

The Spanish publishers will no doubt now see their traffic drop off a cliff, just as their German counterparts did, and this will almost certainly hammer their advertising revenues. But, because of the severity of the law they themselves forced, they will be able to do nothing about it. It’s not even a move that could see local rivals to Google flourish, as the law is not specific to the U.S. firm. I have asked AEDE, the relevant collection society, for comment.

In the overall theme of Europe pushing back against U.S. firms – a narrative that I find overplayed sometimes, as there isn’t nearly enough coordination in Europe to make this some kind of plot – Spain is fast emerging as the most heavy-handed player. The authorities there seem more overtly protectionist than elsewhere in Europe, and they’re not afraid to cause severe consequences for internet users and businesses.

When Spain banned Uber earlier this week, for example, the injunction also ordered Spanish ISPs and payment processors to block Uber’s customers from being able to use the service. And, as the EFF has pointed out, the same copyright law that introduced the “Google tax” will also introduce criminal liability for websites that refuse to remove links to copyright-infringing material.

How Europe could cut Google down to size without splitting it up

Google’s EU search antitrust case is a complex beast that is being overloaded by vested interests. Competition commission Margrethe Vestager would be best advised to keep her solutions simple, and here are some suggestions for what those solutions might entail.

European Parliament reportedly wants Google to be broken up

The Parliament is, according to the Financial Times, poised to call on the European Commission to separate Google’s core search business from its other businesses or take some other serious measure to tackle the firm’s dominance in the EU.