EU Competition Commissioner, Margrethe Vestager, gave an interesting perspective on mergers in the mobile phone market in a speech to the Forum for EU-US Legal-Economic Affairs in Paris on 15 September 2016.
Her predecessor, Joaquín Almunia, had dealt with, an approved mobile phone mergers in Austria and Ireland. On the other hand, Margrethe Vestager has blocked one deal in the UK, seen another in Scandinavia abandoned before it was decided but has also just permitted a deal in Italy. So it is interesting to see her setting out her views. In a short but important passage in a wide-ranging speech on technology and competition law, she said:
When we look at digital markets, I think it's a good idea to start at the beginning. You can't use an exciting new digital service without a good, affordable internet connection. And now that more than half of all Internet access is through mobile devices, that means affordable mobile networks are essential.
To get that, you need competition. Because it's competition that keeps prices down, and drives mobile operators to invest in better networks.
So there can be no room for mergers that harm competition, and raise prices for consumers.
We recently dealt with two planned mergers that would have done just that. So we had to block the merger between Three and O2 in the UK. And we were on the way to blocking Telenor’s joint venture with TeliaSonera in Denmark, when the companies decided to abandon it.
In both cases, we would have been happy to find a solution that would have let the mergers go ahead without harming consumers. It’s just that the solutions which the companies offered would not have been effective enough. But I think Hutchison’s Italian joint venture with Wind, which we approved last month, shows what can be done.
The solution in that case involves a new independent network operator entering the Italian market, with its own towers and its own share of the airwaves. The new player will be Iliad, an experienced operator which has helped make the French mobile market more competitive since it entered that market in 2010.
One alternative might have been to create or strengthen a virtual operator, which rented space on other companies’ networks, to restore competition.
But a virtual operator can't help being dependent on the companies that carry its data and its calls. So it’s difficult to design agreements that give virtual operators the freedom to really compete. And you risk having to monitor the arrangement for years, to make sure physical operators aren't preventing them from competing.
That's why, in the Italian case, we had a clear preference for a structural solution."
A number of conclusions may be drawn from this statement of principles by the Commissioner. First, the door for mobile mergers has not closed but the opening has got narrower. Secondly, deals could also be more expensive because some of those planning on doing deals (particularly, those between competitors) will probably have to court even more those third parties who can provide the remedy to get the deal approved. Thirdly, deals will be closely watched to see do they raise prices and harm competition (including, presumably but it was not said, service/quality/innovation competition). Fourthly, it is interesting to note the Commissioner's words that "we would have been happy to find a solution that would have let the mergers go ahead without harming consumers" (in the case of the Telenor/TeliaSonera and Three/O2 UK deals). Penultimately, structural solutions seem to be the way forward. Finally, the Italian approval seems to indicate (but it is yet to be fleshed out) that one would be looking for a proven new entrant and not just a new entrant to ensure success.
For further information, contact Dr. Vincent Power or your usual contact in A&L Goodbody's EU, Competition and Procurement Group.