Deutsche Telekom has accused the European Commission of creating a "massive imbalance" in the German market, after competition authorities finally gave Telefónica permission to take over Germany's E-Plus, in return for divesting spectrum and assets.
The protracted €8.6 billion takeover was first announced almost exactly a year ago and the deal with KPN will create Germany's largest network operator by customers, with 45 million connections.
However, the European Commission was concerned that the reduction of the German mobile market from four operators to Telefónica, Deutsche Telekom and Vodafone would harm consumers.
It said the merger, along with existing high barriers to entry, would "have led to higher prices and reduced competition to the detriment of German consumers".
To overcome this, Telefónica was forced to sell 30 percent of its combined spectrum holding and divest spectrum and assets to a new German telecoms player or an MVNO.
The Spain-based operator announced it had reached a deal with MVNO Drillisch to sell 20 percent of its network capacity plus an agreement to sell extra 10 percent in due course.
In addition, it said it would also make available a package of 2.1GHz and 2.6GHz frequencies, mobile sites, roaming and passive site sharing to a third party.
The EC explained: "These assets, in conjunction with the upcoming frequency auction to be organised by the German telecoms regulator, could facilitate the entry or enable the development of a new MNO into the German market in the future."
Finally, Telefónica must extend its existing wholesale agreements and also offer 4G to any interested parties in the future.
Rachel Empey, CFO Telefónica Deutschland, said: "The new company will gain significant scale and efficiency benefits which will enable us to challenge the market with innovative products and services with great customer experience."
Joaquín Almunia, who heads up competition policy for the European Commission, said: these "remedies" ensure that the acquisition of E-Plus will not harm competition in the German telecoms market.
But Deutsche Telekom has hit out at the decision, saying that while it encourages market consolidation, the deal leaves a "massive imbalance" in frequency holdings in the German market.
Niek Jan van Damme, Managing Director of Deutsche Telekom's German arm, said: "Telefónica would have access to more than 60 percent of total resources in the 1800-megahertz (MHz) and 2.1-GHz range (UMTS band). This calls for an urgent intervention by the Federal Network Agency."
He added that the deal also gives "an unequivocal advantage" to companies who do not have their own network infrastructure.
"The focus of the competition authorities should not be on strengthening providers without their own infrastructure, but on promoting the network expansion," he continued.
"Our society is continually becoming more digitized and connected, and the necessary infrastructure to support this expansion needs to be built. Marketing existing network capacities will not be sufficient."
Reacting to the deal, James Allison, Senior Analyst at IHS Technology, said: "The biggest implications for the deal are Europe-wide, paving the way for further consolidation of 4-player markets to 3-players.
"KPN will have to look more aggressively at cost cutting in the Netherlands and Belgium, as its main growth driver had been E-Plus. Telefónica’s M&A activity in Germany is unlikely to be finished as it still lacks a strong broadband and TV offer to compete with Vodafone and Deutsche Telekom in the multiplay market."
James Robinson, Telecoms regulation analyst at Ovum, added: "Having historically favored the disruptive nature of smaller players (such as Free Mobile in France), the EC appears to have grown more comfortable with intra-country consolidation within European mobile markets; 3’s acquisition of O2 in Ireland was approved, with very similar conditions, in May, before which it was allowed to purchase Orange’s Austrian unit."