With renewed calls for in-market consolidation and pending transactions in two European countries, it is timely to revisit previous merger review decisions. We’ve analysed the commitments in four deals and considered the impacts they had on the market
In all reviews, the EC was concerned about the risk of higher retail prices. While Austria, Ireland and Germany did see some price rises in the short-term, these have since given way to downward trends. Prices in Italy have fluctuated post-merger, although competition remains intense, particularly in the low-cost segment.
Spectrum divestment and MVNO access have been the most common remedies to alleviate competition concerns. Only in Italy has the EC required the creation of a new mobile network operator to mitigate the impact of the merger, reflecting a hardened stance towards in-market consolidation, which scuppered a previous transaction in Denmark.
In three out of four cases, operators offered to divest spectrum to an interested new entrant. So far this remedy has not been taken up in Austria or Ireland; however, since entering the German market as an MVNO, Drillisch (now 1&1) has leased spectrum from Telefónica and acquired some at auction to start deploying its own network.
In three of the transactions, the merging parties committed to ensuring the short-term entry or expansion of MVNOs by reserving a share of their combined network capacity. However, the gap between the merger and the entry of new players in Austria led to price increases, indicating why getting the timing right on remedies is vital.
In both Germany and Ireland, operators submitted further commitments to support the position of existing players that may be impacted by the mergers. In Ireland, this meant the improvement of network sharing terms between Eircom and Three, ensuring the latter could roll out 4G nationwide and remain an effective competitor.
Spectrum divestment and MVNO access have been the most common remedies to alleviate competition concerns
The past decade saw significant M&A activity in mobile markets as operators sought to gain scale, support investment and boost their ability to compete. Austria, Germany, Ireland, Italy (temporarily) and the Netherlands went from four mobile network operators to three, while Australia, Canada and Norway plus several countries in Asia have seen deals approved by competition authorities. However, Denmark (Telenor/Telia) and the UK (O2/Three) witnessed attempts at consolidation that were either abandoned or blocked.
Where mergers have been allowed in the past, the EC has – alongside national regulators – nevertheless identified various potential theories of harm, requiring concessions from merging parties to alleviate competition concerns. These have often included wholesale access for MVNOs, spectrum divestment and even the carve-out of infrastructure to help establish a new fourth player.
Some operators, particularly in Europe, are again calling for consolidation, while there are two live four-to-three mobile mergers in Spain and the UK. It is therefore timely to analyse the commitments needed to secure the EC’s approval in previous decisions and the subsequent impacts on the market (see Table 1).
Merger commitments in Austria worked to some extent, but the delay in their implementation caused prices to increase
In December 2012, the EC approved the acquisition of Orange's mobile business in Austria by Hutchison 3G (H3G). In its decision, the EC stated that the Austrian mobile market is concentrated and has high barriers to entry, with the deal bringing together two of the country’s four mobile network operators (the others being A1 Telekom Austria and T-Mobile). The EC had concerns that the removal of one of these operators could result in less competition and higher prices, which would harm end users.
H3G submitted commitments, offering in particular to divest 2.6GHz spectrum to an interested new entrant, which would then have the right to acquire additional (800MHz) frequencies at an auction in 2013. H3G also offered to reserve 30% of network capacity for up to 16 MVNOs for the next 10 years – with one agreement needing to be signed before the acquisition could be completed. In light of these commitments, the EC concluded that the transaction would no longer raise competition issues and granted approval. Around the same time, a court approved the sale of budget brand Yesss from Orange to A1 for €390m (£337m), further reshaping the market.
H3G completed the acquisition in January 2013, relaunching the combined entity as "Das Neue Drei" (the new Three) in August of that year. There has been much debate since about costs and benefits of the deal, with a 2016 study by the RTR (Austria’s telecoms regulator) finding that retail prices increased between 50%-90% for the average smartphone user in the two years post-merger. H3G signed its first MVNO access agreement with UPC in October 2012, although it wasn’t until 2015 that new players entered the market – either as a consequence of the merger commitment or via other mobile networks. Prices then returned to previous levels. This situation highlights why getting the timing right on remedies is crucial.
From that point on, the RTR’s own monitoring indicates that prices for different types of consumers have declined, especially for ‘power users’. EC studies also suggest that Austria is one of Europe’s least expensive countries for mobile broadband, while it has some of the region’s most data-hungry consumers. Over the 2015-2022 period, monthly data usage per subscriber rose from 4.3GB to 30.3GB (see Figure 1). With the remedy to create a new mobile network operator not taken up, the market is dominated by three nationwide players. However, competition between them is driving investment in 5G, while MVNO spusu acquired 3.4GHz spectrum in 2019 and is currently rolling out a 5G Standalone network.
Retail prices in Germany have declined after consolidation, although there was much scope for them to do so
In July 2014, the EC approved Telefónica Deutschland’s acquisition of E-Plus from KPN. Combining the third (O2) and fourth (E-Plus) largest mobile network operators in Germany would result in three firms of a similar size. The EC was concerned this would mean a loss of two important competitive forces and reduce the incentives of the other operators (Deutsche Telekom and Vodafone) to compete aggressively, while hindering the ability of MVNOs to exert competitive pressure. It therefore considered that the merger, as notified, would harm consumers, including by driving up prices.
Telefónica submitted commitments, which aimed to ensure new competitors enter the mobile market and to strengthen the position of existing players (particularly MVNOs). The commitments package had three components:
Telefónica committed to ensuring the short-term entry or expansion of up to three MVNOs by selling, before the acquisition is completed, up to 30% of the merged company's network capacity at fixed payments;
Telefónica committed to offer to divest 2.1GHz and 2.6GHz spectrum and certain assets either to a new mobile network operator or to a remedy-taking MVNO, which would then benefit from reserved spectrum at an upcoming auction run the regulator BNetzA; and
Telefónica must extend existing wholesale agreements with Telefónica's and E-Plus's partners, offer them 4G services in the future and improve their ability to switch their customers to another operator.
The deal closed in October 2014, with Drillisch already signed up as a remedy-taking MVNO, securing 20% of the combined firm’s network capacity. In 2019, Drillish acquired spectrum in the 2.1GHz and 3.6GHz bands at auction, and agreed to lease 2x10MHz of 2.6GHz spectrum from Telefónica. This has enabled it to begin deploying its own mobile network (notwithstanding certain challenges) and initiate Germany’s gradual return to a four-player market. Deutsche Telekom criticised the “massive” imbalance in spectrum holdings above 1GHz that the merger created, especially given O2/E-Plus then held 64% of all 1800MHz in use. However, this was arguably addressed to a good degree by assignments in 2015 and 2019.
When the merger was completed, Germany had some of the most expensive mobile prices in Europe. Average data prices have since been on a downward trajectory, falling 60% over the 2015-2021 period (see Figure 2). Operators’ investments in telecoms networks (fixed and mobile) have risen consistently every year, while MVNOs – led by Freenet and Drillisch (now 1&1) – have increased their total market share. Download speeds and mobile broadband usage have also grown, although German users still consume lower levels of data than their counterparts in Austria and France.
In Ireland, the regulator’s concerns that the merger could harm consumers were vindicated – in the short-term at least
In May 2014, the EC approved H3G’s acquisition of Telefónica Ireland, combining the country’s second (O2) and fourth (Three) largest mobile network operators. In the EC’s view, the merger would remove an important competitive force from the market and create a larger firm with only two rivals: Vodafone and Eircom. The EC was concerned that the deal, in its original form, would lead to higher prices and less competition, and that Three could frustrate or terminate an existing network sharing agreement between Eircom and O2, limiting Eircom's options to deploy 4G nationwide.
H3G submitted commitments, which the EC considered would preserve competition and encourage market entry, while recognising the importance of network sharing to reducing operators’ rollout costs. These were two-fold:
H3G offered a package aimed at facilitating the short-term entry of two MVNOs by selling up to 30% of the merged entity’s network capacity at fixed payments, with an option for one of them to become a full mobile network operator by acquiring from H3G spectrum (in the 900MHz, 1800MHz and 2.1GHz bands) at a later stage; and
H3G committed to continue the network sharing agreement with Eircom on improved terms, supporting Eircom's rollout plans and ensuring it remains an effective and viable competitor.
Regulator ComReg criticised the EC’s decision, calling the final commitments inadequate to address serious competition concerns and considering they may have negative outcomes for Irish consumers. H3G nevertheless completed the €780m (£676m) acquisition in July 2014, creating new customer service roles that offset those lost due to store closures. UPC (now Virgin Media) and Carphone Warehouse (using the iD brand) made use of the attractive MVNO terms, launching mobile services in 2015 – although the latter exited the market in 2018. Also, neither Virgin Media or Carphone Warehouse have taken up the option to become a new fourth mobile network operator, which Vodafone predicted and stated would lead to an inefficient use of spectrum.
Under improved terms out to 2030, Eircom and Three continue to share infrastructure, while the operators (together with Vodafone) are jostling for network leadership – specifically in 5G, where coverage has scaled rapidly in recent years. Monthly mobile data consumption has increased from 2.1GB in 2015 to 19.1GB in 2022, which is above the EU average. However, a 2018 report from the the Body of European Regulators for Electronic Communications (BEREC) found that the merger pushed up prices in Ireland, particularly for ‘medium and high’ mobile users. Three rejected the findings, although EC data supports BEREC’s analysis, with average mobile broadband prices rising between 2015-2017 (see Figure 3). Prices have since fallen below 2015 levels, indicating a competitive environment.
In Italy, intense price competition following the entry of a new fourth operator has led to an attempt to reconsolidate the market
In September 2016, the EC approved a joint venture in Italy to combine VimpelCom's subsidiary WIND with Hutchison's subsidiary H3G, respectively the third and fourth largest mobile network operators. The EC had concerns the merger would weaken competition, leading to less choice, lower quality and higher prices. It also believed the deal would increase the risk of coordinated behaviour and reduce the ability of MVNOs to compete effectively.
Recognising the stricter approach taken by the EC in its review of O2/Three in the UK, the parties needed to offer structural commitments (i.e. a ‘fix-it-first’ remedy) to secure approval. The commitments would allow Iliad to enter the Italian market as a new fourth mobile network operator and included:
Divestment of 2x35MHz spectrum from different frequency bands (900MHz, 1800MHz, 2.1GHz and 2.6GHz);
Transfer/colocation (i.e. sharing) by the joint venture to Iliad of several thousand mobile base station sites; and
A transitional agreement (for access to 2G, 3G and 4G, and new technologies), allowing Iliad to use the joint venture's network to offer mobile services downstream while deploying its own infrastructure.
With the introduction of Iliad (and the presence of MVNOs), the Italian mobile market has remained intensely competitive (particularly in the low-cost segment), while service revenue growth has proved elusive for some operators – including TIM and the rebranded Wind Tre. Average mobile broadband prices, which were already relatively low ahead of consolidation, declined in the following two years. They then increased but are still slightly lower than pre-merger (see Figure 4). For example, in launching 5G services, Iliad emulated the disruptive pricing strategy that saw it amass market share in France, undercutting its competitors with a €9.99 (£8.64) per month offer. Amid a challenging commercial environment, there has been an attempt at reconsolidation by Iliad, although its €11.25bn (£9.75bn) bid for Vodafone Italia was rejected despite Vodafone’s wider support for in-market M&A.
As price levels have fluctuated, mobile data usage has increased consistently over recent years, rising from 1.4GB per month per subscriber in 2015 to 18.4GB in 2022. This growth has been underpinned by significant operator investments, resulting in nationwide 5G coverage (enabled by AGCOM’s early awards of pioneer bands). The EC considered that a structural remedy would maintain incentives to invest post-merger, which appears to have been borne out given Wind Tre’s commitment to spend €7bn (£6bn) over a five-year period. However, cut-throat competition and rollout costs have seen Wind Tre and Iliad establish a new joint venture to connect rural areas of Italy.
Given market developments following previous decisions, the EC is still likely to require structural remedies in four-to-three mergers
Across the four reviews, the EC identified several competition issues stemming from the proposed transactions. Common concerns included the loss of an important competitive force (i.e. a disruptor) and the removal of competition between the merging parties, as well as reduced choice at the wholesale and retail levels. In each case, concessions were offered to secure regulatory approval, including behavioural and/or structural remedies. The EC clearly learnt a lesson from the commitments in the Austria merger, subsequently requiring an upfront MVNO access obligation in both Germany and Ireland. The EC’s switch to fixed fees from a pay as you go model was also an intentional attempt to incentivise the remedy taker to utilise the proportion of network capacity it had acquired.
However, while it may have seemed that the commitments in these two countries could establish a blueprint for potential future reviews elsewhere in Europe, the stricter approach adopted in Denmark, Italy and the UK put paid to that hope. Some governments and regulators appear to have become more open to four-to-three mobile mergers, but there has been no indication that the EC has become more amenable. Its ongoing review of Orange/MasMovil has identified significant concerns about the impacts on competition and consumers. Though it is not impossible that in-market consolidation will occur, structural remedies will very likely be a prerequisite.
