Research Notes

Everyone is talking about consolidating the European telecommunications market – Some believe that Margrethe Vestager will change her mind before she leaves the European Commission.

European policymakers’ tendency to deter mobile telecom mergers frustrates the industry’s incentives and ability to invest in broadband infrastructure.  The European Union struggles with a broadband connectivity gap estimated at €174 billion by its own figures, and as much as €300 billion by others. Requests to merge firms from different EU countries must be submitted to the European Commission’s competition section, a department headed by Executive Vice President Margrethe Vestager. There are rumors that the EU could relax its strict view on mobile telecom industry consolidation. This research note considers that that prospect.  

Strand Consult maintains a knowledge center on telecom competition policy and consolidation, engages with many experts, and has published extensively on the topic. Strand Consult’s report Understanding  4 to 3 mobile mergers examines the world’s mobile mergers of this type beginning with 5 to 3 consolidation in Korea in 2002.

Margrethe Vestager changing her view on consolidation would put her decisions over the past 9 years in a new light. It could bring attention to the consequences of the EU’s failed policies, not the least of which is Europe’s investment gap compared to other leading regions.

Strand Consult offers its signature research notes on the topic for further review below.

The consequences of the failed Telenor Telia merger in Denmark and what it means for mergers in the UK, Italy and the global telecom market – Post Mortem

On Monday September 15, 2015 Strand Consult published The EU Competition Authority’s Role in the Failed Telenor Telia Merger in Denmark and the Consequences for Europe – A Post Mortem in which we gave our assessment of what went wrong with the Telenor Telia merger in Denmark and why the proposal was withdrawn.

This research note describes the opportunities for Telenor and Telia in Denmark as well as for other telecom operators wanting to merge. The analysis is based in part on incomplete statements and documents from DG Comp provided to different actors, illustrating that the agency is a black box. A black box is a system in which inputs and outputs can be observed but the inner workings are unknown. This research note then describes how the fallout in Denmark will affect merger and acquisition activities in other countries. The Danish case will likely have an impact on mergers in the United Kingdom and Italy and also on TeliaSonera’s attempt to exit from Eurasia. Read more

BREAKING NEWS: Margrethe Vestager blocks 3UK / O2 deal – Bad news for Europe and consumers. Good news for British Telecom´s shareholders

Telecom investors have focused their attention on the decision to the proposed merger of Hutchison 3G UK and Telefonica UK (O2). EU Commissioner for Competition Margrethe Vestager announced at noon CET today—via Twitter—that she would block the deal. This is bad news for the European telecom industry and the larger goals of the European Commission’s Digital Single Market. However it is good news for the shareholders of British Telecom (BT), which DG Comp has protected as the only player in the UK that can offer a quatro play solution (broadband, video, wireless, and telephony). No other actor in the UK has the infrastructure or scale to compete with BT, just recently awarded an approval for the acquisition of Everything Everywhere (EE), the largest UK mobile provider.

Strand Consult is on record that Margrethe Vestager and her team at DG Comp do not understand the telecommunications market and what it takes to compete with a player such as BT/EE or the advantages that a quatro play provider can enjoy when its only competitors are single play dwarves. Read more.

Telecom operators, regulators and competition authorities need to update their knowledge of what creates competition in the market. Here are four factors that should be considered when regulators define consolidation remedies.

Consolidation in the telecom market is heating up around the world, particularly in Europe. Historically, when evaluating mergers, regulators would review the number of competitors and the market share of proposed entities.This approach may have been appropriate when an operator had a single network offering a single service, such as telephony or linear television. However today’s world is different. Networks deliver competing services.

Authorities may also require “remedies” as conditions for merger approval. The notion is that the authority needs to somehow correct an imbalance or inequality created by the merger. However remedies in themselves can create new and unintended imbalances and inequalities. Therefore it is time for operators, regulators and competition authorities to update their knowledge on what creates competition in the telecom market.

This research note describes the four factors which increasingly contribute to competition in the telecommunications market and why these factors should be included in the assessment of the consolidation and the design of remedies. The four factors are (1) competition from over the top (OTT) providers, (2) network technology evolution, (3) whether the parties are single play vs. full service providers, and (4) future regulation. Read more

Is telecoms consolidation in Asia, Africa, Latin American and Europe a challenge?

Many countries in Asia have a history of very competitive mobile markets and very low prices. This is immediately obvious on the streets of Bangkok, Hong Kong or Bangalore. Mobile data traffic per smartphone in South East Asia and Oceania is projected by the Ericsson Mobility Report to grow by 34% per year from 2021 to 2027 – well in access of the global average. Over half of all mobile subscribers are in the Asia-Pacific region and mobile networks are frequently used as the primary means of household internet access in the region.

As described in our report Understanding 4 to 3 mobile mergers mobile networks require high levels of sunk capital investment. New investment in a technologically volatile environment is inherently risky and costly as operators need to invest not only in equipment and backhaul networks but also in acquiring the spectrum required for efficient use of 5G infrastructure. Consolidation in mature markets has been ongoing: an initial 10 licensed operators for Hong Kong in 1996 had been reduced to 4 by 2014; in the USA the 4 major operators have been reduced to 3; Kenya has 3 operators left after Essar exited the market in 2014 and Brazil also has 3 national operators left after the weakest operator dropped out. Read more

4 to 3 mobile mergers can be derailed by operators telling a story too good to be true and regulators with a religious approach to consolidation

Strand Consult has analyzed consolidation in the mobile industry beginning in year 2000. Our first report appeared in 2002 describing the process in South Korea going from 5 to 3 operators. We described Brazil where many operators were consolidated into 4 today. We have also described the inconsistencies in Europe, Latin America, and USA where 4 to 3 are allowed in some cases and not others and the associated remedies.

Our research has revealed the folly of regulators to reject 4 to 3 mergers for reasons of competition and price, only to find that their logic was wrong and that prices increased. See the case of Denmark: The EU Competition Authority’s Role in the Failed Telenor Telia Merger in Denmark and the Consequences for Europe – Post Mortem Part I and The consequences of the failed Telenor Telia merger in Denmark – Post Mortem Part II in which DG Competition’s decision under the leadership of Danish Margrethe Vestager became a gift to the incumbent, TDC. Read more

Top 10 lessons from 4 to 3 mobile mergers around the world. Report from Strand Consult.

Consolidation is a key topic in the mobile industry. With successive levels of technology, players enter, exit, and evolve in the market. Strand Consult has studied this process for some 20 years. Its new report Understanding 4 to 3 mobile mergers describes this phenomenon and explores why some 4 to 3 mergers succeed while others fail. Together with leading telecom and competition experts, Strand Consult has collected, analyzed, and distilled this knowledge into practical and actionable steps for operators.  This includes the relevant legal, regulatory, historical, and technological aspects of different countries and markets. The report is based upon the review of hundreds of academic articles and empirical assessments of mobile mergers, dozens of case studies of 4 to 3 transactions from around the world, and 150 legal, antitrust, and regulatory proceedings. Strand Consult offers the top 10 lessons about 4 to 3 mobile mergers to help operators get smarter about a complex topic.

Here are Strand Consult’s top 10 lessons from 4 to 3 mobile mergers across the world. Read more

Will Margrethe Vestager change her tune on consolidation before she leaves the Commission?

Strand Consult doubts that Margrethe Vestager will change her tune on consolidation before she leaves the Commission. She has cemented a legacy of being tough on big players and will likely hold fast to that brand until she is out the door.

Alternatively, the next European Commission and the person who succeeds Vestager, could be a change agent who fixes the failed EU merger policy. This could communicate that Vestager and the Commission were wrong, probably not something the Commission wants to do.

A third possibility is that the next competition Commissioner would be like Vestager and would continue in the same vein.

Only one group of mobile telecom operators has succeeded systematically in consolidating their market in Europe: CK Hutchison. Hutchison has executed in-market consolidation in Ireland, Italy, Austria, and Australia, while simultaneously attempting to consolidate in the United Kingdom.

In reviewing the poor performance of the European mobile telecom industry to convince policymakers of the need for consolidation and to succeed to get their mergers approved, Strand Consult observes a similar pattern on fair share and broadband cost recovery. Europe telecom operators thought the Commission, upon conducting a proceeding, would reward the industry with solutions. Instead the Commission cancelled Christmas and told the industry to come back in 2025 when a new Commission is in place. Meanwhile operators in USA, South Korea, and other nations succeed on advancing policy which improves the incentives for investment and broadens the base of contributions for broadband infrastructure.

To learn more, check out Strand Consult’s knowledge center on consolidation and Strand Consult’s Global Research Project for Broadband Cost Recovery, Affordability, and Fair Share.