BRUSSELS – The European Commission paved the way Wednesday for the creation of Germany’s biggest mobile company when it cleared the acquisition of E-plus in Germany, a unit of Dutch KPN, by Telefonica of Spain.

The deal, although subject to conditions, marks a key development in the consolidation of the crowded and deeply fragmented European telecom market.

“The biggest implications for the deal are Europe-wide, paving the way for further consolidation of 4-player markets to 3-players,” said James Allison, Senior Analyst at IHS Technology.

The acquisition, estimated at 8.5 billion euros ($11.6 billion) in cash and a 20.5-percent stake in Telefonica Deutschland, merges Germany’s third and fourth-biggest operators, leaving only Deutsche Telekom and Vodafone as similar-sized rivals.

“The remedies to which Telefonica commits, ensure that the acquisition of E-Plus will not harm competition in the German telecoms markets,” EU Competition Commissioner Joaquin Almunia said.

The commission said the tie-up “as initially notified, would have removed two close competitors and important competitive forces from the German mobile telecommunications market”.

To meet those concerns, Telefonica has offered several concessions.

Telefonica said that it will cede 30 percent of its total network capacity to small rivals which do not have their own infrastructure, known as Mobile Virtual Network Operators, at a fixed price.

The company also promised to sell spectrum space and other assets, to expand existing network deals with competitors, and to sell any future 4G network capacity at a fair price.

“We have now reached the most important milestone on our way to close the transaction”, said Markus Haas, head of Telefonica’s Deutschland Holding AG.

“It underpins consolidation opportunities in Europe, fostering investments and mobile data business,” he added.

– No true single market –

The main worry for the European Commission, which is tasked with protecting and advancing the EU’s single market, is to avoid price rises and other knock-on effects that would be a detriment to European consumers.

The reduction of the Austrian market last year from four players to three was a warning of the potential dangers, Almunia said.

The commission had “made mistakes” in allowing consolidation in Austria without strong enough conditions, he said, adding that the German greenlight came with far tougher requirements.

Almunia regretted that Europe’s telecom sector had not yet become a true single market with a single set of rules. He said that would emerge only with the continent-wide allocation of spectrum space and the creation of a single regulator.

“These barriers are also what sets Europe apart from countries such as the US and China,” he said.

Currently, mobile service can diverge hugely across member states, with some countries enjoying fast technology at a cut-rate price and others behind-the-times and expensive.

“What is needed most of all is to eliminate the remaining national barriers,” Almunia said.

The French market was upended in 2012 with the rise of low-cost provider Free, helped with a deal on capacity from Orange, which triggered a fierce price war.

That severely weakened highly profitable companies, most notably rivals to Orange – the former state monopoly France Telecom — although it also suffered. That boost to a highly aggressive and agile upstart has hastened consolidation.

But on Wednesday, the still partly state-owned Orange signalled that it would not bid for Bouygues Telecom, one of the market’s biggest victims in the price war.

Analysts said the move by Orange may just be a negotiating tactic.

“Investors are hoping for a consolidation of the French market to three operators,” said Tangi Le Liboux, an analyst at Aurel BGC brokerage, adding that little could be made of Orange’s decision.

Analysts said the Commission greenlight for Germany’s market could prove significant in France as elsewhere in the EU.

“The fact that commission did not block the deal will give encouragement to other operators,” said Usman Ghazi of Berenberg Bank.