Speech delivered at the CERRE Dinner Debate, Brussels, 28 November 2016

"Check against delivery"

Introduction

Ladies and gentlemen

There's a Monty Python scene about a group of rebels against the Roman Empire. They ask the crowd, what have the Romans ever done for us? Nothing, comes the answer. Except the aqueducts, and the sanitation, and the roads, and the irrigation...

In other words, nothing but networks.

After all, networks are the backbone of economic development. And they’ve been that way – as Monty Python knew –  for millennia.

Nowadays, of course, network industries are much wider. They also include energy, railways, postal services, telecoms. But what they still have in common is that they give our economy its power to act. Modern services, like e-commerce, seem almost intangible. But you only have e-commerce because there’s a telecoms network to communicate over, an energy network to light the warehouse, a postal service to bring you the goods.

Competition and investment in network industries

And I think that means two things.

It means, first, that investing in our networks is essential for growth. Because those networks set the limits of what our economy can do. What digital services we can deliver to consumers. How quickly and cheaply goods can travel across Europe. How much energy we can save, by using smart grids to help us use less electricity when supply is low.

And, second, it also means that competition matters here more than anywhere. Because networks and the services that use them are an essential part of everyone’s life. And competition makes sure they meet the needs of consumers.

And I don't think there's any conflict between those two things. Because it's competition that drives business to invest.

And I think telecoms networks are a great example of that.

Investment in telecoms networks

Everything today is getting connected to the Internet. Our homes, our cars, the objects we wear.

And to get the most out of developments like the Internet of Things, we need investment in telecoms networks.

We need to offer the latest high-speed Internet connections  and ensure wide 5G mobile access.

That will cost a lot of money. And a lot of the necessary investment will be the result of competition. Because every business knows that if it doesn't invest in better services, its rivals certainly will.

So we encourage investment by defending competition.

Of course, we can also help fill in the gaps in private investment.

The new Electronic Communications Code, which we proposed in September, will help to cut the cost of building new networks. It will encourage telecom companies to build joint networks in the countryside  - with the help of public funds - where it wouldn't be profitable to invest on their own.

Our state aid rules make it easier for national governments to support that investment, if it wouldn't be viable without public money. Just as long as they invest in a way that gives customers as much choice as possible on the networks they fund. So we've worked with Italy, for example, to make sure that whoever builds new broadband lines with public money there, all operators will be able to use them to offer services to consumers.

And to help find the resources to invest in those networks, we’ve also made EU money available. The Juncker Investment Plan has already supported digital investments worth more than 3 billion euros.

Competition in telecoms: mobile-only mergers

But the fact remains that the best way to get investment is competition.

So when we look at mergers between mobile operators, we need to make sure they don't harm competition.

In the last three mobile mergers we’ve looked at – in Denmark, Britain and Italy – it was clear that the merger in its original form would have been bad for consumers. Those mergers would have meant less competition, and higher prices. And the companies didn't prove that they would have invested more than without the merger, let alone that any extra investment would have benefited consumers.

Our issue with those mergers wasn't because they cut the number of operators from four to three. It's because we looked closely at how those markets worked, and found particular reasons to be worried about competition.

In all three cases, the new company would have been the biggest in the country. And in Britain and Italy, that would have meant losing an especially important competitor.

In Britain, Three, which was trying to buy O2, had been charging prices much lower than its competitors’. And it kept them low, even when others tried to raise theirs. In Italy, Hutchison, which was entering a joint venture with WIND, had charged low prices, which had persuaded its rivals to cut theirs as well. So if the mergers had gone ahead in their original form, consumers would have lost an important defence against higher prices.

And in both Denmark and Italy, the mergers would have created market leaders of a similar size, which would have found it easier to coordinate prices.

So in all of those cases, we were concerned that the mergers would have been bad for consumers.

But of course, we’re always open to ways of restoring the competition that's lost by a merger.

And in the Italian case, the companies managed to find one.

In that case, the solution was to create a new physical operator, which will serve customers from its own towers, with its own share of the airwaves. That operator is Iliad, which has considerable experience. It already helped to make the French mobile market more competitive, after it entered that market back in 2010.

That kind of structural remedy, with a new physical operator, is the best answer to competition concerns. Because it can solve the problem once and for all.

But in the British case, the companies didn't find a good remedy.  They did offer to let virtual operators use space on the merged company's network . But those operators would have depended so entirely on the new company that they wouldn't have been able to compete effectively. And the remedy did not resolve the structural problems created by the disruption to the current network sharing agreements in the UK.

Mobile-only mergers and investment

So our duty in those cases was clear. If there wasn't an adequate remedy, we couldn't let the merger go through.

Consumers needed the competition, both to keep prices down, and to spur companies to invest.

It’s certainly true that there could be times when a merger would not harm consumers. When it could give companies the size and resources they need to invest. And in that case, we'd need to see if those investments would benefit consumers more than the loss of competition would hurt them. A number of recent studies have looked into that issue, including, of course, one carried out by CERRE.

But in our recent cases, the companies didn’t prove that they needed the merger, to be able to invest or improve the quality of their networks.

In Italy, the companies also said that merging would let them roll out new networks more cheaply. But they didn’t explain why they couldn't just agree to share their network.

After all, network-sharing can cut the costs of rolling out new networks. It can make it easier to expand into areas that had no coverage before. And it can do all that without harming competition.

It's true that network-sharing can also raise competition issues, in certain circumstances. That's why we started an investigation last month, into the network-sharing deal between T-Mobile and O2 in the Czech Republic.

But that doesn't change the fact that a well-designed network-sharing agreement can do a lot of good for consumers.

Competition in telecoms: fixed-mobile mergers

So in all those mobile mergers, it was hard to see how the merger would benefit consumers. The costs, on the other hand, were very clear indeed.

But mergers between fixed and mobile companies can help consumers, if it means they get a better or cheaper deal.

People are now pretty used to getting phone, Internet and TV all from the same company. Those triple-play offers can save them money. And that could be even more true if you make a quadruple-play offer, by adding mobile as well.

One way to do that is for fixed and mobile companies to merge. I'm thinking of mergers like the purchase of BASE by Telenet in Belgium, or the Dutch joint venture between Vodafone and Ziggo.

In those cases, we looked at whether the companies could use quadruple-play offers anti-competitively, to squeeze standalone companies out of the market. But we didn't find any real issues on that score.

So our only concern in those cases was when the companies already competed. To make sure that competition wouldn't be lost, Telenet and BASE set up a new virtual operator. And Vodafone had to sell off its fixed business to a company with the capacity to make a success of it. But that didn't undermine the main aim of the mergers – to create businesses that could compete in both fixed and mobile markets.

Conclusion

Those remedies will make sure consumers still have a choice. And that's exactly what the competition rules are for.

We need to be sure that with all the changes that are going on – changes not just in technology, but in business models as well – the needs of consumers are never forgotten.

This isn’t just about telecoms markets, of course.

In energy, for example, we understand that governments are willing to pay to make sure there will be enough electricity supply to meet demand, by setting up so-called capacity mechanisms.

But our inquiry into how those mechanisms work in 11 European countries suggests that governments could do better when it comes to introducing them. The inquiry has shown, firstly, that they need to do more to check if capacity mechanisms are really needed. And secondly, they also need to improve the design of those mechanisms to keep costs down, for example by taking account of electricity that can be imported from other EU countries.

Of course, consumers need investment in better networks. But you can't separate that need from all the others. From the need for choice, innovative services, and affordable prices. And competition can deliver all of those benefits.

None of us knows what tomorrow’s digital world will look like. None of us can try to specify in detail how it should work. But it will work better for everyone if there’s competition. And we’ll keep working to make sure that's the case.

Thank you.