The commission has concerns that the transaction may reduce competition in the German market, where currently both companies compete with each other.
The take-over would combine the two companies and create a player of similar size to the two current leading operators, Deutsche Telekom and Vodafone.
Worried that the take-over would have a negative affect for wholesale access bought by mobile virtual network operators, the commission has argued that there is a possibility that after the transaction, service providers could have less choice of host networks and hence weaker negotiating power to obtain favourable wholesale access terms.
"At this stage, it cannot be excluded that the reduction in the number of competitors following the merger would increase the likelihood that MNOs (mobile network operators) will coordinate their competitive behaviour and increase prices," the commission said in a statement.
The commission has until May 2014 to rule on the deal.
“We are confident that the authorities will approve the deal as a third strong mobile network operator will foster competition in Germany to the benefit of the customers,” Albert Fetsch, spokesman for Telefonica Deutschland announced.
