Bulgaria’s competition regulator allowed the Vivacom owner to buy the Bulsatcom communication towers

One by one, Slovenia Broadband - the owner of Vivacom Bulgaria - overcame the obstacles standing on its way to acquiring Bulsatcom, the other leading player in the Bulgarian TV and Internet provider market. The Bulgarian Commission for the Protection of Competition (CPC) made a decision on 30 November (published on 5 December) allowing Slovenia Broadband to acquire 167 communication towers of the (until recently) leader in TV distribution services. Bulsatcom also currently ranks among the top three providers of fixed Internet services.

CPC saw no danger of excessive concentration of power and decreed "immediate execution" of the deal. The green light decision of the antimonopoly body, however, was taken with a dissenting opinion from one of its members, along with the objections from A1 and Yettel rival telecoms, as well as from one of the founders of Bulsatcom.

The decision follows another antitrust authority ruling approving a key deal worth 1.22 billion euros, in exchange for which the Saudi company TAWAL acquired a total of 4,800 cell towers from United Group, Vivacom's parent company, in Bulgaria, Croatia and Slovenia.

What did the CPC allow?

In short, the CPC decision stems from a procedure on the notification of Slovenia Broadband for the acquisition and leaseback of part of the Bulsatcom assets. More specifically, it is about 167 sites for deployment of mobile base stations or other telecommunications equipment, as well as elements for fixed electronic communication networks.

The assets in question are used for retail television distribution, fixed Internet provisioning, fixed voice telephone services and the colocation of mobile network equipment. Said assets are a key element in the competitive landscape in these sectors, as will be discussed below.

In 2023, the owner of Vivacom Bulgaria (Slovenia Broadband is the sole owner of United Group, which is Vivacom's parent company) officially requested the CPC to consider the agreement to acquire Bulsatcom key assets from its subsidiary United Towers. The plan was then to have Vivacom Bulgaria acquire the right of ownership over some elements of the infrastructure in question and in the future lease them back to Bulsatcom.

The deal for the towers precedes an agreement concluded 9 months later for the acquisition of the entire Bulsatcom by United Group Bulgaria. A CPC review and assessment of market power concentration has also been triggered for the second deal, which is different from the first one.

Background: How Bulsatcom became a hot topic

Having gone through severe financial turbulence and becoming the subject of complicated legal disputes, Bulsatcom also attracted attention with its change of ownership. The case surrounding this became complicated in the summer of 2021 when it became clear that a businessman - Spas Rusev, through his Viva Corporate Bulgaria - wanted to buy at least 75% of the capital of Bulsatcom Investment Limited (a British company, which is the sole owner of Bulsatcom).

The deal was finalized a year later, but in the meantime, it became clear that it was actually financed with a loan from United Group. The loan for the acquisition of Bulsatcom was in the amount of 127 million euros, and according to its terms, UG must receive payments back in the form of Bulsatcom infrastructure and equipment.

As for Spas Rusev, he was a major shareholder in Vivacom before its sale to United Group. Although he parted with his ownership in the telecom, he remained on the Supervisory Board of the company - on the grounds that he would help for a smoother transition. Last August, a few days before the deal for Bulsatcom was entered into the British registry, the Bulgarian telecom announced that the businessman had left the board.

The events described above have served as an argument for A1 and Yettel (competitor telecom companies) to describe what was happening as a "proxy" purchase of Bulsatcom. These companies then signalled the CPC, which prompted the investigation (another inspection had previously been carried out by the British market regulator).

This is the context surrounding the agreement of Slovenia Broadband to acquire 167 Bulsatcom communication towers, as well as the deal for the sale of the satellite TV provider - from Spas Rusev to United Group.

A legally justified conclusion could be made that in violation of Art. 24, para. 1 of the (Bulgarian) Competition Protection Act the planning and implementation of a series of related transactions has begun, with which United Group, through Viva Corporate Bulgaria EAD, has acquired control over Bulsatcom, write "A1 Towers Bulgaria", A1’s infrastructure subsidiary, in its notification to CPC.

Competitors' analysis on the acquisition of Bulsatcom's 167 towers by Slovenia Broadband states that this transaction effectively takes control of the provider even before the agreement for its formal sale to UG has been concluded. According to Cetin Bulgaria, Yettel’s infrastructural unit that separated some time ago from the parent company,

The subject of the deal is, if not the whole, then the most essential, the most important and the most valuable part of the Bulsatcom enterprise. It is through this infrastructure that all revenues from the company's activity are usually realized."

Dissenting opinion

Dimitar Kyumurdzhiev, a member of CPC, is also of the opinion that the deal for the towers represents market concentration, which is why he signed the decision for its approval with a dissenting opinion. In it, he insists on assessing the "effect of the transaction on the market in practice" and actually taking into account the loopholes found by lawyers to circumvent the Competition Protection Act.

In fact, Slovenia Broadband’s notification to the CPC contains two transactions, according to Kyumurdzhiev:

1.      United Towers Bulgaria acquires control over 167 cell towers, while

2.      Vivacom Bulgaria acquires the ownership of assets representing elements of a fixed electronic communication network

The ultimate goal of both asset transfer transactions – cell and fixed (cable) infrastructure – is to settle Viva Corporate’s liabilities accompanying the prior acquisition of Bulsatcom.

According to Kyumyurdzhiev, these two transactions are "practically one deal", through which the Bulsatcom sole owner pays off his debt to the creditor (Slovenia Broadband), through United Group Bulgaria.

The division of the assets into cell and fixed infrastructure and their definition as an independent part of the Bulsatcom EAD enterprise can be justified by circumstances that they are technically different types, are not interconnected and are used to provide different services (mobile services - voice and data transfer and fixed services - data transfer/Internet access and TV provisioning, respectively). Notwithstanding, at the end of the day, these two types of infrastructure also represent the entire commercial enterprise of Bulsatcom EAD, notes the dissenting CPC member.

In this line of thinking, Plamen Genchev, co-founder of Bulsatcom, who has been fighting for a long time to retain his ownership share in the company, explains their importance from a technical point of view, emphasizing the integration between the fixed optical network and the infrastructure for mobile services.

"The infrastructure through which modern mobile telephone services are provided is integrated with the optical fixed network (FNC) in such a way that the mobile device operational signal is transmitted from the service-initiating mobile device through the towers, passes through FNC, after which it is transmitted to the corresponding cells, at the place where the receiver is located, through which it reaches the mobile phone. The integration between towers and FNC is necessary in order to achieve efficiency", states Genchev in his appeal to the CPC.

It thus follows that the separation of Bulsatcom’s fixed and cell infrastructure into two independent parts of the enterprise was made only with the aim of bypassing the evaluation of the transaction as a single deal", believes Dimitar Kyumurdzhiev.

According to him, after the transfer of ownership, the acquired enterprise has no assets with which to carry out its operational activity and

therefore, through the sale of assets, there is a permanent change of control over them in favour of Vivacom Bulgaria EAD."

As for the leaseback agreement on the assets which is concluded at the same time as their sale - it aims to "disguise the actual legal status of the deal".

Translated by Tzvetozar Vincent Iolov