42nd Annual Conference on International Antitrust Law and Policy Fordham University, 2 October 2015
*** Check against delivery***1Introduction
Good morning Ladies and Gentlemen,
It’s a real pleasure to be here today at Fordham University and to take part for the first time at one of the main events in the calendar of competition experts, practitioners and enforcers.
Just as business is becoming ever more global, so too is the competition community. Only last week, I was at a meeting of the merger working group of the International Competition Network in Brussels. It was attended by over 250 participants from some 50 countries from all over the world. There are also more and more competition authorities around the world. The International Competition Network itself grew from 15 founding members in 2001 to over 130 today.
But there can be no doubt that the strength and depth of cooperation between competition enforcers in the EU and US remains unparalleled. It is – and will continue to be – at the heart of our international work. And this is especially true when our sister agencies are investigating the same transactions or conduct.
However, there are some challenges that remain national or regional in scope. The industry players may be different, and the regulatory situation too. And yet we can still face similar challenges in our efforts to make such markets competitive and keep them that way for our consumers. We can still learn from each other.
Today I would like to speak about one example – the telecoms sector.
I intend to share my views on the state of competition in telecoms industries in the EU with special reference to the latest proposed merger between mobile operators we have dealt with in Brussels. I will then say a few words on the lessons that can be drawn from that case – and those that cannot.2Telecoms
2.1Looking back at telecoms markets
In the US, the history of competition action in the telecoms sector is both long-standing – just think of the break-up of the former AT&T into the so-called Baby Bells in the 1980s – and more recent – with the challenge to AT&T’s acquisition of T-Mobile in the cellular space.
In the EU, the path from national monopolies in the 1990s to competition was achieved through ex-ante regulation, giving alternative operators’ access to the fixed networks of incumbent operators – against payment, of course.
Competition enforcement also had a role, with a string of cases against incumbents that were trying to use anticompetitive means to protect their domestic market positions, such as those involving Telefónica of Spain, Deutsche Telekom, Slovak Telekom, and Telekomunikacja Polska.
This string of names gives a telling indication of the main difference today between EU and US telecoms markets. In contrast to the US, a pan-European telecoms market does not yet exist – even though we have far fewer network operators in the EU than in the US.
2.2What telecoms markets look like in the EU and the US today
Just look at the mobile sector. About 80 to 90 players operate in the US national market. Among them, there are four nationwide mobile operators, one multi-regional operator, and dozens of regional and local operators.
In Europe, we have around 35 mobile network operators at group or company level.
The two biggest players are present in eleven and twelve EU countries respectively. The four biggest operators serve around 60% of EU subscribers.
In addition, we have a number of players that are active only in a limited number of countries or in just one. In each of the national markets, there are typically three, at most four, mobile network operators.
So, while the biggest companies in the EU are present in multiple territories, consumers in each territory are captive in national markets. They cannot access the same offerings as their neighbours across national borders.3Telecom Mergers
It should come as no surprise therefore that mobile mergers are assessed on the basis of national geographic market definitions. The past few years have seen a number of mobile mergers in Europe – in Austria, Ireland and Germany. Each was a four-to-three merger and each was approved subject to conditions. I’d like to focus now on the most recent mobile four-to-three transaction – concerning the Danish market.
3.1TeliaSonera and Telenor's joint venture in Denmark
3.1.1Recalling the news and sketch of the Danish market
This concerned a proposed joint venture between the Danish operations of two Scandinavian telecom operators, the Swedish-Finnish TeliaSonera and the Norwegian Telenor.
The companies decided to abandon the transaction on 11 September, before we issued a formal decision.
We were, however, on the road to prohibit the merger. We considered the remedies offered by the parties to be insufficient to address our competition concerns.
Denmark is one of the most competitive mobile markets in Europe, with low prices, high usage and large customer choice.
It is also one of the leading markets from a technology perspective, with 4G/LTE as standard. We were concerned that the merger would have negatively affected these favourable conditions.
3.1.2Facts of the case
The merger would have created the largest mobile network operator in Denmark and would have resulted in a highly concentrated market structure.
If the deal had materialised, there would have been two large mobile operators – the merged entity and the former national monopolist, TDC. Between them, they would have had around 80% of the market. The third, smaller player would have been Hi3G.
The two merging companies already operated a joint network, which offers a network of similarly high quality as the network of the former incumbent TDC.
Of course, this fact is highly relevant in our assessment of mergers, as a high network quality can be achieved without having to sacrifice retail competition.
According to our analysis, the merger would have had anti-competitive unilateral effects across the board from retail private and business customers to wholesale customers and co-ordinated effects at least on certain retail customers.
And while the companies claimed that the merger would lead to greater investments, our investigation did not show how these investments would materialise.
And in any event, even if the investments did materialise, we could not see how the benefits for consumers would outweigh the expected price increases induced by the loss of competition.
The parties offered two sets of remedies in an attempt to allay our concerns.
Under the first proposal, they aimed at facilitating the entry of a new, fourth mobile network operator in Denmark.
To do so, they proposed to make available a limited amount of spectrum for the roll-out of a self-standing mobile network, and a wholesale access agreement to their own joint network.
Given the scope and conditions attached to this offer, we had serious doubts that it would lead to the envisaged entry of a new fourth operator in Denmark.
The parties then made a second proposal. This was to divest a limited ownership stake in their shared mobile network to a new entrant with a right to use a corresponding share of the network capacity.
This was complemented by the divestment of one of the companies' secondary brands with a very limited market share and additional options, such as the take-over of some shops.
In principle, this second proposal was a step in the right direction. However, in our view, it would not have been effective in remedying the identified harm.
The proposal was insufficient in scope and scale. And it lacked crucial precision on fundamental aspects, such as the financial participation by the potential entrant in the shared network. These failings seemed likely to affect the viability, competitiveness and incentives of the new entrant.
In conclusion, the remedy appeared to fall short of creating a strong and independent fourth mobile provider in Denmark that could address serious competition concerns in this case.
3.2Lessons for the future?
Perhaps inevitably, the outcome of the Danish merger has led to a debate as to what lessons can be drawn from it for future mergers between mobile network operators in Europe. Quite a few I would think. First, regarding the case-by-case nature of our merger work. Second, for the competition and investment debate. Third, for remedy design in telecoms and beyond.
3.2.1No magic number
The first and most obvious point is that there is no magic number – whatever De La Soul had to say – on the number of mobile network operators in a given country. The Commission has not laid down a general rule saying that three or four network operators are necessary.
In reviewing mergers, we follow a strictly case-by-case approach assessing each transaction on its own merits. Each market is different and they must be assessed individually.
So we follow the same rationale that underpins our review of all mergers – whatever the industry and the geographic area concerned. We strive to make sure that they do not weaken competition to the detriment of consumers and businesses.
3.2.2Link between competition and investment
This leads me to the issue of the relationship between competition in telecoms markets and investment. To start with, let me say that – in general – we make sure mergers do not weaken competition because it is competition that stimulates the right kind of investment.
In competitive markets, companies have strong incentives to invest and innovate to offer superior products and win business from their competitors.
Why should a company invest and innovate if there is no competitor to provide the impetus? I can still remember the days of national telecom monopolies in the EU: high prices, low service quality and less innovative products.
We also have recent examples of the impact of competition in investment on this side of the Atlantic.
Google's announcements of fibre deployment in a number of US cities have been followed by established operators increasing the quality of their offerings to consumers and businesses in those cities.
So far, I have not seen compelling evidence that would support the existence of a trade-off between competition and investment.
Research seems to suggest that a reduction of the number of players from four-to-three in a national mobile market in the EU can lead to higher prices for consumers. But not that it leads to more investment per subscriber. In other words, it does not seem to lead to significantly higher overall investment by carriers.
And we should not forget that consumers ultimately do not benefit from investment as such. It is the impact of investment on parameters of competition such as quality and price that leads to consumer benefit.
What really matters for future research in this area is therefore the relationship between competition on the one hand and network quality and price per subscriber on the other hand, rather than investment as such.
220.127.116.11Taking account of network quality – experience from merger review in the EU and the US
In the mobile telecom sector, I often hear the argument that consolidation is necessary to operate larger, better and more efficient networks.
How do we take account of such claims? Well, when assessing the mergers that are notified to us it is not just about low prices for customers, but also about choice and innovation.
Some consumers prefer cheaper, no-frills services; others are willing to pay more for better services.
Competition not only takes place through low prices, but also through an increase in the quality of mobile services and innovative offers.
So of course, the "consolidation leads to investment" argument needs to be looked at very carefully. We carefully assess in each case any claims put forward that the merger would lead to increased investment to the benefit of consumers – for example in terms of increased coverage.
In practice, we assess whether post-merger investment plans are credible and likely, merger-specific, and with benefits for end-consumers as opposed to shareholders.
However, only a fraction of the efficiency submissions we have seen in successive cases have met these criteria.
In this context, we should not forget that mobile network operators can share mobile networks and thus benefit from large efficient networks without the need for consolidation. The Danish case is a good example of this. As I’ve said, we did not find that the proposed merger would lead to greater investment and network quality.
Our conclusions in Denmark therefore largely echo those of previous cases.
And our conclusions to date also seem to echo those of the US Department of Justice (DoJ) when it challenged another “four-to-three” merger, the AT&T/T-Mobile merger, before the District Court for the District of Columbia in 2011.
3.2.3Nature of remedies
Another area that is much discussed these days is the nature of remedies required in mobile telecoms mergers.
When a merger raises competition concerns, we can only approve it if the remedies proposed address them in a comprehensive and effective manner.
The investigation into the Danish telecom merger took account of the specific features of that market both in terms of harm and in terms of remedy.
An effective remedy in the Danish case would have been the creation of a fourth mobile network operator (MNO). This would have replaced the competitive pressure eliminated by the merger.
Some have questioned whether this means that we are having second thoughts about the remedies in the merger cases cleared in Austria in 2012 and in Ireland and Germany in 2014.
In those cases, the Commission considered that the establishment of new mobile virtual network operators (MVNO), which is a less structural solution than creating a new MNO, was sufficient to resolve the competition concerns.
I do not question that conclusion, which was reached in view of the specificities of the markets and merging parties concerned. It is also probably too early to conclude on the effectiveness of the remedies in those cases as they are still being implemented. The remedies in the German case are also under appeal before the Court.
What I can say is this: The more structural the remedy, the better.
There are good reasons to prefer structural remedies in horizontal mergers, especially when they are immediately effective and solve the competition concerns once and for all.
Other types of remedies may be appropriate in some circumstances. But they generally present more risks as to their effective implementation.
They can be particularly difficult to monitor.
They are also in place only for a defined period of time – however long. So this can make them less effective in guaranteeing the ability of the beneficiary company to compete in the long run.
Our preference for structural remedies applies across all sectors, including telecoms.
In the first second phase case in the telecoms sector that I dealt with as Competition Commissioner, the acquisition in Spain of Jazztel by the French telecom company Orange, we required a structural remedy that was fully proportionate to the competition concerns identified.
The case raised competition concerns on the market for fixed internet access services in Spain.
We approved the merged in May this year, subject to a number of commitments, including the divestiture of an independent Fibre-To-The-Home network similar in size to Orange's original network in Spain.4Close
I’ve spent quite some time discussing mergers in the mobile telecoms sector. But that is not the only challenge on the Commission’s plate these days in the telecoms sector. We have also just launched a review of the EU telecoms regulatory framework under the responsibility of my colleague, Andrus Ansip, the Commission Vice-President for the Digital Single Market.
In fixed markets, this means reviewing access regulation; in mobile markets, ensuring that spectrum is managed under a more harmonized framework.
We need to make sure that the level of competition achieved so far is not only maintained but enhanced, in order to enjoy all the benefits of a digital single market.
As President Obama recently said, "more competition means better products and cheaper prices”. “We do that with just about every other product. We ought to be doing it with broadband”.
This was in the context of the US discussion – one we will follow with interest.
Summing up my remarks today, Europe’s telecom markets need to overcome a paradox. On the one hand we have a technology that can connect us instantly to the four corners of the world. On the other hand, we have telecom markets within the EU that remain essentially national.
I can see that policy makers on both sides of the Atlantic pursue similar objectives in their domestic markets and the thinking of enforcers when it comes to mergers seems to be broadly aligned.
Above all, I am sure that debates on how to make telecoms markets work well for consumers will keep us busy both in the EU and US for quite some time.
 14 Jan. 2015, "Remarks by the President on Promoting Community Broadband" at Cedar Falls, Iowa.