DG COMP research shows that mobile prices in the EU are consistently lower than in the US, but that consolidation tends to increase prices and may not deliver greater investment
The intensity of competition has reduced over time driven by “winner takes most dynamics”
On 24 June 2024, the EC’s DG Competition published a report on the evolution of competition in the EU over the past 25 years. The report seeks to assess how the conditions of competition within the bloc have changed over time, as well as to discuss the main reasons why. It also offers new research on the impact of (effective or weak) competition on competitiveness and overall economic growth in the EU. Findings presented in the first part of the report suggest that on average and across a wide range of sectors:
Concentration at both the industry and the market level has increased;
Markups and profits in particular at the top of the distribution chain have increased;
The gap between industry leaders and followers in terms markups, profits and productivity has increased; and
Business dynamism (as measured by indicators such as market share volatility between leading firms or entry and exit rates) has declined.
The EC states that an important driver of these developments seems to be that large first-mover firms can reap most of the benefits (“winner takes most dynamics”), largely due to long-term structural economic shifts, including investments in data, R&D and patents. These dynamics appear to have had both benign and adverse effects on competition in the EU, which the report states is now less intense than it was in the past.
In line with similar studies, mobile prices in the EU are found to be significantly lower than in the US
The second section presents research on price-concentration relationships in six “emblematic” sectors, including mobile telecoms, that are characterised by similar input costs but notable price variations across Member States and between the EU and other markets. The findings for the mobile industry are based on quantitative evidence from the 2009-2019 period and indicate that market structure has a strong impact on prices. The research takes average revenue per user (ARPU) as a proxy for price, due to its simplicity as a representation of the “effective price” paid by consumers and in light of measurement issues that can arise when identifying usage profiles under the so-called basket approach. Consistent with similar studies, the data shows that, over the 2009-2019 period, average ARPU in the US is almost double that in the EU. Although ARPU is decreasing in both regions, the trend appears stronger in the EU, suggesting an even larger differential compared to the US over time.
Three-player markets tend to have higher prices than those with four players, although Germany may be an exception to the rule
The research also analyses trends in prices in three- and four-player markets, finding that EU countries with three mobile network operators have consistently higher ARPUs than those with four operators. Notably, the negative trend is very similar across the two types of markets, suggesting that the difference in ARPU is likely to persist in the long-run. The report acknowledges that the empirical assessment does not account for underlying cross-country differences, including customer habits, usage profiles, consumer purchasing power, regulation and tax rules. However, controlling for such unobservable country-specific factors, the estimates suggest that one additional operator is associated with a 7-9% reduction in ARPU. The research also discusses specific market structure changes in France (the entry of a new fourth operator) and Germany (a four-to-three mobile merger), and the subsequent effects on prices. While ARPU in Germany continued to gradually decline after the Telefónica/E-Plus merger in 2014, it decreased much more sharply following the entry of Free Mobile in France in 2012. According to the analysis, the gap in ARPU between the countries has narrowed as a result of these two events, although France still has a noticeably higher ARPU.
The research could not reliably establish a positive relationship between in-market consolidation and capex
Additionally, the research states that impact of MVNOs on prices seems not to be statistically significant, which suggests they pose a negligible competitive constraint on mobile operator pricing. It also studies the relationship between investment and market structure, using capex as a proxy for improvements in the quality and availability of telecoms services as experienced by users. A simple comparison between Europe and the US shows that the level of investment in the US (a four-player market in the period investigated, but with higher and more stable ARPU) has been consistently higher than in the EU. When focusing on the EU, countries with four mobile operators display a lower level of capex per user compared to countries with three operators. However, the research cautions against concluding that in-market consolidation necessarily means greater investment, noting the limited set of countries analysed and systematic differences between countries that may not have been accounted for. Testing with a full sample of 29 countries against those countries that have not seen market entry or exit (the control group) points to a negative relationship between market concentration and investment. Regression results show that a rise in the number of operators is positively associated with country-level investment (+10%). As such, while consolidation in mobile tends to lead to higher prices for consumers, the research could not reliably discern a positive relationship between concentration and investment over the 2009-2019 period.
