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  • The review from EU General Court of 3/O2 mergers opens the door to mobile operator consolidation in the EU
  • The EU might now follow the USA: a market of 3 leading national MNOs, not 4.
  • The consolidation in EU could support more 5G/broadband investment.

MEF regulatory advisor Serafino Abate looks at the EU General Court’s recent decision taking apart the approach of the Directorate-General for Competition on mobile operators mergers. The number of networks competing in a market could lower from 4 to 3. Should we expect more mobile mergers and what could it potentially mean for consumers and the wider mobile ecosystem?

On 28 May 2020, the General Court of the European Union issued an important judgement which affects the way mobile mergers are going to be evaluated in the future.

The Court annulled the decision by which the European Commission’s Directorate General for Competition (‘DG Comp’) had opposed with its decision in May 2016 the implementation of a proposed concentration between two of the four mobile network operators in the UK’s mobile market, namely Three, a subsidiary of Hutchison ltd., and O2, controlled by the Telefonica group.

This was a proposed 4 to 3 merger, the likes of which have proven particularly difficult to get approved in recent years, especially since Margarethe Vestager took over the helm at DG Comp. In its decision, the Commission opposed the merger on the ground that is could reduce competition to the detriment of consumers and competitors citing three ‘theories of harm’.

First, it considered that the transaction would eliminate important competitive constraints, and would have likely led to an increase in prices for mobile telephony services.

Second, the transaction would have had a negative influence on the quality of services for consumers, hindering the development of mobile network infrastructure in the United Kingdom. Third, the transaction would put a risk three MVNOs, Tesco Mobile, Virgin Mobile and TalkTalk, via the structural changes to the existing network sharing agreements (‘NSAs’) between the UK’s mobile networks.

Legal scholars and practitioners will no doubt in the coming months spare no effort in dissecting the Court’s decision and articulating its finer implications. This is after all a unique judgement

Legal scholars and practitioners will no doubt in the coming months spare no effort in dissecting the Court’s decision and articulating its finer implications. This is after all a unique judgement – the first time the Court intervenes on a failed merger, and the first time it makes its opinion known on so called ‘non-coordinated effects’ – a situation when companies in an oligopolistic market are perceived to reduce competition by reaching a higher price/lower quality outcome but without there being any active collusion on their side.

This judgement, for starters, dampens regulators’ appetite for using this particular ‘theory of harm’ in the future, unless they can come up with better evidence to prove it is the most likely outcome, and not just a likely one.

On the evidence itself, the Court is particularly aggressive in dismissing the Commission lack of proper engagement with the potential benefits and efficiencies of the merger. The Court acknowledge that price increases were shown to be a likely consequence, but castigates the Commission for not articulating properly how these would have been counterbalanced by efficiencies such as innovative services or better quality.

The Court itself refer to a 2015 study by CERRE which shows that mobile mergers, even 4 to 3 mergers, can increase investment in mobile networks. More recent studies, for example by the GSMA, have added to the evidence that mobile mergers do bring about more investment and better quality of service for consumers. In the USA, the FCC and the Department of Justice, in their approval of the T Mobile/Sprint merger in 2019, argued that the merger could provide significant benefits for consumers in terms of faster speeds and more availability on 4G and 5G services.

Finally, the judgement takes aim at the theory of harm concerning the disappearance of what is commonly referred to as the ‘maverick’, namely the perceived disruptor in the market which is considered to bring about aggressive price competition to the benefit of consumers. The Court reminds the Commission that the EC’s competition rules are designed to protect the competitive process – and not any specific competitor.

One can infer from this that the Court does not consider that the reduction in the number of players is per se a sufficient condition for lower competition, even in a 4 to 3 merger. Indeed, in its judgement the Court points to many markets with oligopolistic and even duopolistic structures which nevertheless it its view exhibit robust competition.

So, what does it all mean for mobile markets? For a start, we are now more likely to see more mergers. In Europe, where many operators might struggle to roll out economically a nationwide 5G network, especially if they end up paying too much for the spectrum in the forthcoming auctions. But we should also expect this judgement to impact the prospects of mobile mergers in other jurisdictions across the world, where the EU lead in regulatory matters is closely followed.

For consumers and the whole ecosystem of providers of services, this judgement opens the door to a consolidation of network infrastructures which could lead to higher investments, and, ultimately, better quality of mobile broadband, making it an even more reliable and ubiquitous conduit for the variety of services consumers access on the go. With 5G fast approaching, this judgement could spell the dawn of a new era for mobile services.

Serafino Abate

Regulatory Advisor, MEF