Four into three won’t go – the European Commission’s recent approach to consolidation in the mobile telecoms sector
The European Commission’s latest merger decision in relation to consolidation in the mobile sector confirms its recent approach in this area: that it will not approve a deal that results in only three mobile operators in a national market.
The latest decision relates to the proposed joint venture between Hutchison and VimpelCom in Italy, which combines Hutchison's mobile business H3G with VimpelCom's mobile business WIND - two of the four mobile network operators in the Italian mobile market.
The Commission had a number of concerns about the transaction:
that the transaction would eliminate competition between two strong players and create the largest mobile network operator in the Italian retail mobile market, reducing the incentives of the joint venture to compete, as well as those of its competitors.
that, by creating three similar sized competitors, the transaction could have made it easier and more likely that the remaining three operators would coordinate their behaviour in the market.
that the transaction would have reduced the number of mobile network operators willing to host so-called "mobile virtual network operators" on their networks. These operators do not have their own networks, but rely on access to the infrastructure of mobile network operators to provide mobile services to consumers.
In the face of these concerns, the parties offered a structural remedy designed to allow a new fourth mobile network operator to enter the market, which the Commission considered would resolve its concerns. There are three elements to the remedy: the divestment to the new operator of a certain amount of the joint venture’s mobile radio spectrum from different frequency bands, an agreement by the joint venture to transfer or share several thousand mobile base station sites and the conclusion of a transitional agreement, allowing the new mobile network operator to use the joint venture's network to offer customers nationwide mobile services until the new mobile network operator has built its own mobile network.
In addition, the parties submitted the remedy as a "fix-it-first" solution. This meant that the parties had already entered into an agreement with the French telecom operator Iliad to purchase the divested assets. Iliad entered the French mobile market as a fourth network operator four years ago, which gave the Commission confidence that the remedy should be effective in introducing a new operator into the market.
The Commission’s decision in this case appears to be consistent with its approach to the other most recent proposed consolidation in the mobile sector – the O2/Three merger in the UK. That deal would have reduced the number of mobile network operators in the UK from four to three, creating the largest operator, and the Commission had similar concerns to the Hutchison/Vimpelcom case. Although the parties offered a number of behavioural remedies, the Commission did not consider that they were sufficient to address its concerns and blocked the deal.
In a press release relating to the Hutchison/Vimpelcom case, the Commission noted that “there are good reasons to prefer structural remedies [as they] have the potential to resolve competition concerns in mergers between competitors once and for all.”
The message therefore appears to be clear – a transaction that results in only three mobile operators in a market is unlikely to get the green light from the Commission.