Four-to-Three Telecoms Mergers: Substantial Issues in EU Merger Control in the Mobile Telecommunications Sector
Four-to-Three Telecoms Mergers: Substantial Issues in EU Merger Control in the Mobile Telecommunications Sector
Kalpana Tyagi 0
0 K. Tyagi (&) PhD Candidate The Max Planck Institute for Innovation and Competition , Munich , Germany
This article addresses the recent four-to-three telecoms mergers in the EU and factors such as deregulation and convergence that have provided impetus to the accelerated pace of consolidation. It seeks to find an answer to the elusive question: what is the magic that ensures the approval of the European Commission, is it the magic of the number of mobile network operators, or does some other factor exist, such as the magic of remedies? While looking for answers this article employs an inter-disciplinary approach, using insights from law, economics and corporate strategy. It emerges that there is indeed some magic: not an individual piece of magic but instead collective magic of numbers, of the relevant market and of remedies. Effective, clear-cut remedies with a structural dimension, as was the case in H3G Italy/WIND/JV, ensure the Commission's approval. Failure to submit suitable remedies, as was the case in H3G/Telefo´ nica UK and TeliaSonera/Telenor, led to prohibition decisions and withdrawal of notification, respectively. The article also criticises the circular loop that the Commission is trapped in - with regard to design of remedies in telecommunications mergers - and underscores the need for a more innovative approach to remedial design.
Telecommunications mergers; Merger remedies; H3G Italy/WIND/JV; H3G/Telefo´ nica UK; BT/EE; TeliaSonera/Telenor JV; Mavericks; MVNOs
In order to effectively satisfy the increased appetite for multi-play offers the
European Union telecoms sector has recently experienced immense mergers and
acquisitions (M&As) on two fronts: On the one hand, the four-to-three mobile
mergers, and on the other, the fixed/mobile (F/M) integration.1 This first part of a
two-part article focuses on the four-to-three mobile mergers and remedies. The
second part will concentrate on the F/M mergers.
In her address at the 42nd Annual Conference at Fordham Commissioner
Vestager said that when it came to telecommunications mergers, there are no magic
numbers and as far as design of remedies is concerned, remedies that may
effectively alleviate competition concerns in one merger may not prove to be
equally effective in another.2 She also praised the Danish telecommunications
market for its competitiveness and innovativeness.3 About a week before she
delivered the speech two Danish mobile network operators (‘‘MNOs’’), TeliaSonera
and Telenor, which had failed to be just as innovative in their design of remedies
with regard to their concentration increasing four-to-three merger, withdrew their
notification due to the impending risk of a prohibition decision being issued by the
European Commission.4 Earlier during the year the European Commission (the
‘‘Commission’’) had prohibited a merger between H3G and Telefo´nica UK, while
the UK Competition and Markets Authority (the ‘‘CMA’’) had unconditionally
cleared a merger between British Telecom (‘‘BT’’) and Everything Everywhere
(‘‘EE’’). Both the mergers involved the United Kingdom market for mobile
telecommunications. Shortly thereafter the Commission cleared the H3G Italy/
WIND/JV, a four-to-three merger, after the parties submitted a substantial set of
remedies, including a carve-out that ensured the entry to the Italian
telecommunications market of Iliad, a French MNO.
Why does the Commission sometimes approve four-to-three mergers while at
other times it prohibits them? What is the accepted number of MNOs in a given
market? What kind of merger commitments ensure the Commission’s approval of a
Employing an inter-disciplinary approach, using insights from law, economics
and corporate strategy, this article first analyses strategic considerations and
technological factors, such as convergence and multi-play offers, which have
provided impetus for consolidation in the sector, and then follows that with an
indepth analysis of the very different outcomes in the aforementioned three prima
facie very similar mergers which the Commission was notified of during the same
This part of the article is organised as follows. Section 2 offers a brief overview
of the technological side and factors such as convergence and multi-play offers that
have disrupted the traditional notion of competition and services in the
telecommunications sector. Section 3 examines the role of MNOs, Mobile Virtual Network
Operators (‘‘MVNOs’’), mavericks and network sharing agreements (‘‘NSAs’’) in
promoting innovation-led competition in the sector. Section 4 discusses in detail
two sets of three recent mergers, each set experiencing a very dissimilar outcome:
1 Schubert (2016); Manigrassi et al. (2016), pp. 1–2.
2 Speech by Commissioner Vestager dt. (
4 TeliaSonera/Telenor/JV (Case M.7419), Commission Decision,  OJ C 316/01.
the first set comprises of three four-to-three mergers which the Commission was
notified of during the time of Commissioner Joaqu´ın Almunia; while the second set
comprises of the more recent H3G Italy/WIND/JV, H3G UK/Telefo´ nica and BT/EE
mergers which the Commission was notified of during the time of Commissioner
Margrethe Vestager. Section 5 further develops on the preceding sections,
summarising Sect. 4 and, in the process, identifying trends in the assessment of
future telecoms mergers and the design of remedies in future telecoms mergers.
Section 6 concludes this part of the article.
2 Convergence and Consolidation in Telecoms
Traditionally the telecommunications sector was viewed as a natural monopoly that
in order to function effectively needed to be subject to sector-specific regulation.5
The regulatory approach was eventually replaced by a competition-led approach as
the sector experienced two disruptive changes, one technological and the other being
the accompanying regulatory change.6 Convergence in the telecommunications
sector upset the long-established view of assessing the sector as a natural monopoly –
it transferred the approach from one that required sector-specific regulation to one
that was led by well-established principles of competition law. Technological
disruption in the form of convergence prompted authorities world-wide to deregulate
the sector. In 2002 the European Commission adopted a consolidated ‘‘Electronic
Communications Package’’ to accelerate its move towards a ‘‘digital, knowledge-led
society’’.7 In its regulation dated December 2000 the Commission made it mandatory
for ‘‘incumbent operators’’ to offer new entrants access to the local copper loop8 at
reasonable costs on ‘‘fair, transparent and non-discriminatory’’ terms.9 The
introduction of competition in the market for local copper networks was expected
to accelerate the spread and adoption of the Internet across Europe.10 Competition
and regulatory intervention in the telecommunications sector merits conscientious
reflection, as it effectively means balancing short-term price and quantity issues
against long-term investment and innovation objectives.11 It may not be apparent, but
it is true that regulation significantly impacts competition in the telecoms sector, such
as by offering access to competitors, as in the case of local loop unbundling.12
In late 2016 the Commission proposed the Connectivity Package that, inter alia,
seeks to establish a European Electronic Communications Code. From the first
5 Speech by Tirole dt. (
), pp. 4–6; de Streel (2011), pp. 75–76.
6 de Streel (2011), pp. 77–80 and 84–87; Cave (
), pp. 30–32; Huveneers and de Streel (2009),
7 Popoviu¨ (2010).
8 The Regulation defined the local loop as the physical circuit that connects a subscriber’s premises to the
main distribution network or an equivalent local facility.
9 Regulation (EC) No 2887/2000.
11 Nenova (2007), p. 185.
12 Speech by Tirole dt. (
Communications Package to the latest legislative proposal of the EU ‘‘Connectivity
Package’’, the principles of competition law remain the basis on which the
Commission seeks to achieve its strategic objective of ensuring a connected and
competitive digital society.13 The ‘‘Proposal for a Directive 2016’’ also identifies the
steady convergence of the telecommunications, media and Information Technology
(IT) sectors and the seamless range of services that it can offer to achieve the single
Convergence is self-reinforcing in the sense that it receives continuous positive
reinforcement from the supply side as well as the demand side. In the multimedia
market, for example, a firm’s resource- and knowledge-based strategies, as well as
convergence on the technological side, have prompted them to bundle and integrate
different forms of content – such as sports, soap operas and movies – into one
attractive offer, which collectively may be more value added than the individual
parts thereof.15 On the demand side, likewise, there has been an increased demand
for bundled services. Multi-play bundles, particularly the quadruple play consisting
of fixed voice, fixed broadband, pay television (Pay-TV) and mobile services, are
increasingly in demand. Bundles can be welfare-enhancing for consumers. The UK
Office of Communications (Ofcom), for example, found in its 2014 study of the cost
and value of telecommunications services in the UK that triple-play services on
average cost the consumer £32.12, compared with £56.16 (in 2012 prices) for the
average standalone equivalent.16
It is evident from both the supply-side (the resource-based perspective of a
firm17) as well as the demand-side that such multiple play bundles are a potential
strategy18 that maximises the welfare of both sides. The observation, although
broadly true, merits prudence before one concludes that the strategy is also the more
frequently followed one.19 The strategy acts along a continuum and, depending on
the nuances of the given market concerned, there could be a range of models that a
service provider can choose from.
The search for alternative business and revenue models has commenced, as
following deregulation and convergence service providers have suffered decreased
average revenue per user (ARPU).20 In order to improve their margins they started
offering multi-play services.21 The decline in telecoms retail revenue was
13 Proposal for a Directive (2016), p. 3 and 17.
14 Ibid., p. 2, 24.
15 Pagani (
), pp. 6–8.
16 Ofcom (
), p. 15.
17 For an appreciation of a firm’s ‘‘Absorptive Capacity’’, which is its ability to identify valuable external
information and internalise that for commercial success, and associated theoretical and empirical
foundations based in transaction cost economics and resource-based view of a firm, see Cohen and
18 Fudenberg and Tirole (1991).
19 Bar (
20 Groene et al. (2017).
21 See Lee and Lee (
), pp. 44–53. The authors take an empirical study based on OECD data and find
that the triple-play strategy inter alia led to significant increases in the ARPU of telecommunications
service providers, though the quadruple-play strategy did not have a substantial impact on ARPU.
increasingly compensated for by increased sales of ‘‘mobile handset data, the
Internet of Things (IoT), fixed broadband and Internet Protocol Television
(IPTV)’’.22 In UK double-play, which refers to the bundling of fixed-line telephony
and broadband, bundles are more successful, with an overall subscription rate of
46%; in France triple-play comprising of telephony, broadband and Pay-TV bundles
are more widely accepted, with more than 30% of households subscribing for those
Mixed evidence on the uptake of multi-play offers has also prompted telecoms
operators to pursue different M&A strategies: while some have focused on mobile
mergers, others have considered F/M integration.
3 MNOs, MNVNOs and NSAs: The Process of Dynamic Competition
At the retail level MNOs and MVNOs are the most effective sources of competition.
There are also other service providers, such as branded retailers, but, from the
perspective of competition in the market, MNOs and MVNOs are the most effective
sources of retail competition.24 This section looks at the role of challenger MNOs,
MNVOs and different kinds of network sharing arrangements and their role in
promoting competition in the sector. This section also assesses whether MVNOs can
position themselves as innovative and disruptive competitors at the retail level and
whether it is reasonably feasible for them to upgrade themselves to MNOs.
3.1 MNOs and MVNOs: An Uneasy Tale of Upstream Access and Downstream
Service providers that own infrastructure and spectrum are known as MNOs.
MVNOs, unlike the MNOs, do not have their own infrastructure; instead they
negotiate and enter into complex network sharing agreements with the MNOs. This
market is often referred to as the ‘‘wholesale market for access and call origination
on mobile networks’’, whereby there exists a vertical link between the MNOs that
comprise the supply side and the MVNOs which are the demand side.25 Wholesale
access is an essential input that enables non-MNOs to offer retail services.
Obtaining access to MNOs is a complex process, in which MVNOs and other
service providers first invite MNOs to bid for wholesale access contracts. Short-term
business objectives and long-term strategic goals, such as optimising the usage of
networks without congesting them and the cannibalisation of existing revenues,
prompt MNOs to enter into or refrain from bidding.26 Due to its strategic objectives
22 Mason Market (2017).
23 Green (
24 Hutchison 3G UK/Telefo´nica UK (Case M.7612), Commission Decision,  OJ C 357/08, at para.
25 Hutchison 3G Italy/Wind/JV (Case M.7758), Commission Decision,  OJ C 391/05, at paras.167
26 Ibid., at paras. 1836 and 1873.
and short-term operational constraints an MNO may completely refuse to enter into
an access agreement or may periodically choose to freeze the network of an MVNO.
This total or partial foreclosure strategy can in turn adversely impact the ability of
MVNOs to compete effectively at the retail level.
An MVNO, depending on its level of commitment and corporate strategy, may
adopt one of the three business models.27 First, it may be hosted on the network of
an MNO as an enhanced service provider; second, it may choose to be a light, or
partial, MNVO; or lastly it may operate as a fully fledged MVNO.28 Full, or thick,
MVNOs are the most sophisticated of the three, as they typically have their own
core infrastructure. Irrespective of the business model an MVNO chooses to adopt,
all MVNOs require access to a network, given that even a full MVNO does not have
its own radio network access or spectrum.29
Alternatively, instead of receiving access from MNOs, MVNOs may also receive
access to the network from Mobile Virtual Network Aggregators (‘‘MVNAs’’) or
Mobile Virtual Network Enablers (‘‘MVNEs’’). MVNAs and MVNEs are
intermediaries that negotiate wholesale contracts for access to network and spectrum with
MNOs. They enter into contractual arrangements with MNOs and in turn offer
access to MVNOs, without themselves being active in the downstream retail market.
They thereby act as pure intermediaries and may facilitate the initial entry of an
MVNO in the retail market.30
The traditional view of vertical foreclosure saw an upstream market dominated
by a monopolist which attempted to foreclose the downstream market and engage in
exclusionary conduct.31 In the telecoms market oligopoly exists both at the
upstream as well as the downstream level. To appropriately model exclusionary
behaviour in such a market that market is more appropriately modelled as a
twolevel market, both levels of which are oligopolistic in nature. A vertically integrated
(VI) monopolist with exclusive control over the infrastructure may prefer to restrict
access to downstream firms. However, in the case of competition in a market for
wholesale access VI firms face a prisoner’s dilemma,32 as refusal to offer access
may prompt other firms to offer access to downstream players.33 Substantial
competition between MNOs ensures that they have considerable incentives to enter
into reasonable deals with MVNOs.34 Considering the importance of effective
competition in the upstream wholesale market for access and call origination, to
ensure that vertical competition concerns are averted the Commission considers it
important to ensure the continuance of ‘‘meaningful and effective competition’’ in
27 Lee et al. (
), pp. 17–19.
29 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 181.
30 Ibid., at paras. 210–14.
31 Posner (1976), pp. 171–211.
32 Prisoner’s dilemma is a dilemma faced by the parties wherein given a lack of complete and perfect
information, both of the parties are unaware of the choice of the other party. Confronted with a dilemma
both the parties are likely to choose an outcome which ultimately makes them both worse off.
33 Brito and Pereira (2010), p. 662.
34 French Conseil de la concurrence 2008, at para. 90.
the upstream market. In H3G Italy/WIND/JV the Commission therefore assessed
the vertical effects of the transaction, as part of its assessment of the horizontal
effects in the upstream wholesale market.35 Likewise, in H3G UK/Telef o´nica UK
one of Commission’s significant concerns related to the elimination of wholesale
competition, which would make the future entry of non-MNOs particularly
There are different segments of retail customers and each may have a different
set of requirements. As we discussed above, while some customers may value a
combined value-added bundle of mobile voice and data, others may prefer only
mobile, others cheap international call options and yet others may want only
bundles of data. Considering the very niche nature, small size and specific
requirements of these isolated market segments, MNOs may find it unviable to tap
them optimally. MVNOs are able to effectively step in and complement MNOs by
offering competitive services to those untapped niche market segments. This
meaningfully explains the success of niche MVNOs such as Lycamobile, the
world’s largest fully fledged MVNO, with an eight-million-strong customer base
and operating in 18 countries, it has its own infrastructure, including a call centre
that provides services in more than 20 languages.37 Lebara mobile, another niche
MVNO that targets price-sensitive international call customers, has a well-defined
sales and marketing strategy, and has in the past sponsored international cricket
deals and music awards.38 It receives access from MNOs such as Vodafone, and,
like Lycamobile, has a call centre, which provides services in more than 32
languages. Both Lebara and Lycamobile are €1 billion plus brands and bigger than
Tesco Mobile, a mass market MVNO.39 In addition to niche MVNOs, there are also
mass-market mobile-only and mass-market F/M MVNOs. Mass-market mobile-only
MVNOs, such as Asda Mobile and the Post Office in the UK, often cross-sell their
mobile services along with other services, such as supermarket shopping and postal
services. Mass market F/M MVNOs, such as BT Mobile, offer fixed, voice,
broadband and mobile services and look to sell bundles or cross-sell their
Of those three types, strategically speaking MNOs may be more willing to sell
wholesale access to niche MVNOs, such as Lycamobile, that help them maximise
their revenue potential.41 MNOs generally view such MVNOs as associates that
optimise the utilisation of their infrastructure, rather than as competitors that may
potentially cannibalise their margins.42
35 Hutchison 3G Italy/WIND/JV, supra note 25, at paras. 213–215.
36 Hutchison 3G UK/Telefo´nica UK, supra note 24, at paras. 1811–12 and 2209–10. In this decision
different types of MVNOs, service providers, MVNAs and MVNEs were collectively referred to as
37 Bennett (2013).
38 Garside (2011).
39 Bennett (2013), Garside (2011).
40 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 977.
41 Ibid., at para 442.
42 Bennett (2013).
The mobile telecommunications sector has high entry barriers. Entry as an MNO
involves substantial sunk costs and a lengthy time period. MNOs also require access
to valuable spectrum, which is scarce and expensive, and need to make considerable
investments in developing a radio access network with national coverage. Even new
entrant MNOs may find it challenging to enter into arrangements such as NSAs with
established MNOs. Restrictive access agreements tend to prevent MVNOs from
offering competitive price and data bundles.43 Dependence on MNOs means that
MVNOs have limited freedom to design their own tariff plans and ‘‘meaningfully
differentiate their retail services’’ from their host MNO in terms of quality or
technical innovation.44 Contractual clauses reduce their incentives to compete
effectively. Moreover, the most frequently employed access model in Germany and
the UK is the ‘‘price-per-unit’ agreement wherein MVNOs pay MNOs based on the
number of units of services received.45 In the Italian telecoms market the
contractual agreement between MVNO DIGI and H3G requires DIGI to have at
least 20% of its total traffic as outgoing international traffic for it to enjoy continued
access at wholesale tariff rates.46 Moreover, MVNOs have limited opportunities to
grow, both horizontally as well as vertically. Successful MVNOs generally tend to
be acquired by the MNOs that initially offer them wholesale access.47
The question then emerges is whether established MVNOs, such as Lycamobile,
Lebara and Tesco Mobile, can be effective potential contenders that can upgrade
themselves to MNOs. A decision to upgrade and operate as an MNO is dependent
on the following factors: firstly, experience with the market (i.e. technical and
commercial expertise); secondly, access to the network; thirdly, financial capacity;
and finally, a minimum critical mass. Before an MVNO may consider the possibility
of upgrading, it is absolutely essential that it acquires a minimum critical customer
base that makes its conversion into an MNO a potential profitable strategy.48 When
attempting to calculate these numbers, the Commission’s empirical analysis of the
Irish telecoms market merits attention. The merging parties used a ‘‘variable cost
analysis’ to show a market share of 3.8%, i.e. 112,000 Irish mobile users, was the
‘‘tipping point’ at which an MVNO may find it cost effective to upgrade itself to an
MNO. Respondents to the Commission’s market test indicated that for calculation
of the tipping point not only the variable costs but also CAPEX (Capital
Expenditure) and spectrum fees should be included. Liberty Global, for example,
calculated that 200,000 subscribers, which approximated to 5% of the market, was a
suitable tipping point.49 To facilitate further analysis the Commission eventually
adopted the average of those two estimates.
43 French Conseil de la concurrence 2008, at paras. 39 and 47.
44 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 1024.
45 Ibid., at para. 1039.
46 Hutchison 3G Italy/WIND/JV, supra note 25, at para. 869.
47 French Conseil de la concurrence 2008, at para. 83.
48 Grajek and Kretschmer (2012).
49 Hutchison 3G Ireland/Telefo´nica Ireland (Case No COMP/M6992), Commission Decision,  OJ
C264/6, at paras. 946–48.
Even when the minimum ‘‘tipping’’ market share is achieved, an MVNO may
require a substantial period of time, from 5 to 10 years, to upgrade itself to an MNO.
To be able to effectively compete in the retail market, and to differentiate the
products offered, the key is control of a network, as distinguished from mere access
to the network.50 Offering MVNOs the opportunity to upgrade themselves and to
own infrastructure, instead of leasing it on a pay-as-you-go basis, can turn those
potential competitors into effective, fully fledged competitors.51
In Liberty Global/Base the European Commission considered the possibilities of
MVNOs evolving into an effective competitive constraint over time. Liberty
Global/Base was a merger between Liberty Global (a Belgian cable operator that
offered fixed internet, fixed telephony and cable services and retail mobile
telecommunications services as an MVNO) and Base, which was one of the three
MNOs in Belgium.52 Both Liberty Global’s MVNO and Base were aggressive
competitors that exerted a significant competitive constraint in the Belgian retail
market for mobile telecommunications services.53 Even though Liberty Global was
dependent on the MNO for access to the network, it exercised an important
competitive constraint at the retail level. Base was identified as an aggressive MNO
that exercised an important competitive constraint on the other MNOs. The merger
was therefore expected to considerably weaken retail competition. To alleviate the
Commission’s concerns the parties offered a ‘‘fix-it-first remedy’’ of transferring
their ownership of Mobile Vikings and Jim Mobile to Medialaan and offering the
latter all incidental support, such as access to Base’s mobile network, so that
Medialaan could in the long run evolve into an effective competitive constraint.
The analysis of and remedies in four-to-three mergers, which is discussed further
in Sects. 4 and 5, offers a valuable assessment of an MVNO’s potential and
limitations with regard to offering meaningful retail competition and over time
upgrading itself to an MNO.
3.2 Mavericks and Competition
MNOs and MVNOs share a very special relationship, as MNOs want to offer
MVNOs access, but only to a limited extent and under a very restrictive set of
conditions. MNOs offer wholesale access in order to optimise the use of their
available capacity and to maximise their revenues.54
It appears that there is a proportional relationship between the size of an MNO
and the cannibalisation effect. For smaller players, who may also usually be late
entrants to the market, limited market share means that their first priority is
optimising the use of their networks and spectrum. As networks are subject to
50 UK Ofcom (
), at para 1.44.
51 Fauver and Ramanarayanan (2016), p. 74.
52 Liberty Global/BASE Belgium (Case M.7637), Commission Decision,  OJ C141/06, at paras.
53 Ibid., at paras. 235–65.
54 Hutchison 3G Italy/Wind/JV, supra note 25, at paras. 1226–27.
economies of scale, the smallest of the MNOs (which usually also is the last entrant)
in a market generally tends to be a maverick.55
When Martin Bouygues entered the French telecoms market, with the Bouygues
Telecom MNO, he said, in jest, that he had not purchased a castle for gypsies to take
a walk on its lawns.56 The oblique reference there was to Bouygues Telecom and
MVNOs, respectively. But it was not long before the very telecoms company that
had disdained MVNOs was helping their growth in the French telecoms market.
Bouygues was not only disruptive as it soon started offering MVNOs access to its
infrastructure on much more competitive terms than those offered by other MNOs,
its contractual clauses were also much less restrictive, which offered MVNOs
greater flexibility with which to meet the requirements of retail customers. That, in
turn, prompted other MNOs to relax their existing contractual conditions.57 For very
similar reasons, Base, the smallest MNO in Belgium, offered MVNOs access to its
infrastructure on incredibly promising contractual conditions. That prompted the
migration of MVNOs from other MNOs to Base. Competition from Base prompted
the other, more established, MNOs, such as Proximus and Mobistar, to offer access
on more favourable terms.58
In H3G Italy/WIND/JV the Commission’s analysis indicated that even though
H3G had a modest market share, its impact was influential, as it more willingly
offered access to ‘‘mass-market non-MNO entrants’’, unlike O2 and Vodafone,
which were more selective and offered access only to niche non-MNOs.59
Interestingly, the very presence of a maverick can be a key driver of competition.
In wholesale markets MVNOs invite MNOs to participate in bids and auctions. The
bidding nature of markets means that even in the bidding processes where H3G, an
important competitive constraint in the UK mobile market, merely participated,
without actually winning them, it played an important role.60 In its opinion Ofcom
pointed out that the H3G UK/Telefo´ nica UK merger was expected to adversely
impact the parties’ incentives to offer wholesale access, as it could generate greater
cannibalisation effects. Therefore even in cases where H3G would have otherwise
offered access the merged parties would refuse to do the same.61
These late, and smallest, entrants therefore play a disruptive role in two of the
fundamental relevant markets that usually are also most vulnerable to
anticompetitive effects: the market for retail telecommunications and the market for
wholesale access to the network and call termination.62
According to the Horizontal Merger Guidelines (HMG), some firms may be more
effective competitive forces than their market shares may indicate. The loss of such
55 Bourreau and Dogan (2001), p.173.
56 See de Launay (
), « Je me suis achete´ un chaˆteau, ce n’est pas pour laisser les romanichels venir
sur les pelouses. ».
57 French Conseil de la concurrence 2008, at paras. 94–95.
58 Ibid. in para. 93.
59 Hutchison 3G Italy/Wind/JV, supra note 25, at paras. 1920 and 1969–70.
60 Hutchison 3G UK/Telefo´nica UK, supra note 24, at paras. 2028–29 and 2036–42.
61 Ibid., at paras 2204 and 2209–10.
62 French Conseil de la concurrence 2008, at para. 94.
a firm as a result of a merger may adversely affect competition due to the loss of
such an important competitive force.63 A new entrant is usually more innovative
than the incumbent players, which can be explained by the varied incentives of the
two sets of operators.64 Furthermore, depending on the amount of force exerted, a
firm may be considered to be an important competitive force or a maverick. In H3G
Italy/WIND/JV the Commission described H3G as ‘‘an important competitive
force’’ that contributed ‘‘substantially and consistently’’ to the process of
competition in the Italian telecoms market on the basis of ‘‘price, quality, choice
The significance of important competitive constraints’’ can be appreciated by
noting the fact that even in mergers which involved other MNOs but were expected
to otherwise adversely impact the competitive position of a maverick, the notifying
parties had to offer commitments to eliminate those anti-competitive effects. The
2010 merger between T-Mobile and Orange was expected to adversely impact the
RAN-sharing joint venture between 3UK and T-Mobile.66 It was expected to
marginalise 3UK, a maverick in the UK mobile telecommunications market and the
concentration was therefore viewed as a five-to-three merger (and not a five-to-four
merger).67 To alleviate the concerns the parties offered to sign a new agreement
with 3UK that contractually offered clarity and a commitment to promptly complete
the integration of networks. The amended agreement was also significant in the
respect that it did not have a termination clause.68 The commitments, though
nonstructural in nature, highlight the importance attached to mavericks and the role of
network sharing agreements (NSAs) in promoting infrastructure-led competition.
This article will turn to NSAs next.
3.3 Network Sharing Agreements
MNOs often have complex network sharing arrangements that are imperative for
dynamic, infrastructure-led competition. Moreover, the associated financial budget
for deploying an NSA is so high that often even MNOs need to share the cost of
developing and maintaining an NSA. They, therefore, enter into complex NSAs.
Considering the role of NSAs in the promotion of dynamic, infrastructure-led
competition, the Commission has been particularly concerned about the adverse
impact of telecoms mergers on NSAs. In H3G UK/E-Plus the merger was expected
to decrease ‘‘industry-wide investments [in] network infrastructure’’.69 As the
notifying parties were members of two different NSAs, after the merger they could
63 EU Merger Regulation 2004, para 37.
64 Bourreau and Dogan (2001), p.177.
65 Hutchison 3G Italy/WIND/JV, supra note 25, at paras. 432–433 and 437–438.
66 T-Mobile/Orange (Case No COMP/M.5650), Commission Decision,  OJ C108/03, at paras.
67 Ibid., at para. 106.
68 Ibid., at paras. 204–13.
69 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 1233.
more closely align the industry-wide investment strategy with their own by
withholding further investments in either or both of those networks.70
Mutual co-dependence in NSAs means that for the effective and optimum
functioning of the networks the partners must have aligned interests and strategies.71
Each of the members of a network has veto power, which means that if one of the
partners refuses to invest further in the network the subsequent development of
infrastructure is prevented. In H3G UK/Telefo´ nica Ireland, therefore, the
Commission was concerned that the adverse impact on the NSA between H3G UK and
Eircom could lead to the subsequent marginalisation of the latter.
Furthermore, these complex agreements may, based on the level of the parties’
commitment, be active, passive or fully fledged agreements. Alternatively, the
parties may opt to participate together in spectrum auctions and use that spectrum
jointly to optimise their costs and the usage of the valuable resource (i.e. the
spectrum). Depending on the type of NSA, the MNOs involved benefit from a range
of CAPEX72 and OPEX73 cost savings.74 Passive infrastructure may involve only
the sharing of communication towers, in which the MNOs can place their own
active equipment.75 In the Italian market, for example, Infrastructure Wireless
Italian S.p.A (‘‘INWIT’’), the largest operator by number of sites and tenancy ratio,
offers simultaneous passive access to all of the Italian MNOs.76
In recent mergers the Commission has gone a step further and considered
whether more active NSAs can be an effective alternative to promote investment-led
competition. In H3G/WIND/JV the notifying parties claimed that consolidation
would bring significant impetus to investment-led competition. The Italian market
was, at that time, characterised by passive sharing agreements only.77 As a
counterfactual to the merger the Commission assessed whether the parties could
alternatively enter into active NSAs, and found that the latter was likely to generate
more benefits and revenue synergies.78 It was found that active sharing, particularly
active Long-Term Evolution technology (LTE) sharing, would yield efficiencies
equivalent to the proposed JV without generating any associated anti-competitive
The observation merits qualification, as NSA arrangements, though generally less
troublesome than mergers, present their own set of problems. NSAs can, for
example, negatively affect infrastructure-led competition if the strategic objectives
70 Ibid., at para. 1287.
71 Ibid., at para. 1234.
72 CAPEX refers to Capital Expenditure such as the cost of acquisition of fixed assets and undertake new
projects and investments. They can be considered as sunk costs.
73 OPEX are the Operating Expenses incurred in the course of daily operations. These are the equivalent
of variable costs.
74 Hutchison 3G Italy/WIND/JV, supra note 25, at paras. 97–113.
75 Ibid., at paras. 106–09.
76 Ibid., at paras. 110–13.
77 Ibid., at paras. 100.
78 Ibid., at paras. 1582–94.
79 Ibid., at paras. 1615–30.
of the network-sharing partners differ. As each member of the NSA enjoys a veto
power, refusal to any subsequent proposals (such as further investments and
network upgrades) by even one of the members of a network means that the deal
may collapse completely. This means that the members of a network need to be
unanimous on each and every subsequent proposal to ensure its successful
implementation. If even a single member rejects an upgrade or change, that may
restrict further development.80 NSAs can also present other competition concerns,
such as co-ordinated effects. That can, for example, be the case with a four-MNO
market which has two network sharing agreements, given that in such a situation it
is easy for the MNOs to monitor deviations and effectively punish the deviating
member. In such a market there is also a distinct possibility of ‘‘industry-wide
coordination to refuse to supply MVNOs’’.81 In an active NSA parties need to
regularly share sensitive information relating to network capacity and usage. Access
to sensitive information can lead to collusive outcomes.82 To prevent that an
effective regulatory requirement, such as mandatory Chinese walls which prevent
marketing and commercial teams from receiving access to technical information, is
just as paramount in the case of an NSA-led mobile market as in the case of a
concentration-enhancing merger.83 Additionally, the nature of the
telecommunications sector is such that it offers its players numerous opportunities to interact in
multiple settings, giving them the opportunity to co-ordinate and soften conditions
of competition. Bilateral inter-connection, standard-setting and
infrastructuresharing agreements are some of the ways in which they can ‘‘interact, retaliate
and collude’’ not only on price but also on strategic aspects, such as design of
networks and choice of technology, thus affecting dynamic competition adversely.84
4 Recent Four-to-Three Mergers: Similar Telecoms Mergers, Dissimilar
Between 2012 and 2014 the European Commission conditionally approved three
four-to-three mergers: H3G/Orange Austria; H3G Ireland/O2; and Telefo´nica
Deutschland/E-plus. This was during the term of Joaqu´ım Almunia as EU
commissioner for competition. In late 2014 a new commission was appointed and
Margrethe Vestager replaced Almunia as the commissioner for competition. The
start of her term was greeted by the notifications of three four-to-three mergers
across the EU: TeliaSonera/Telenor JV; H3G UK/Telefo´nica UK; and H3G Italy/
WIND/JV. Considering the consistent approach followed by the commissioners
during their terms, and the substantial difference between their respective
80 Schubert (2016).
81 OECD (
), p. 69; Rey (
), pp. 27–28.
82 Hutchison 3G UK/Telefo´nica UK, supra note 24, at paras. 1293–97, 1737–42 and 1784–85. In this
case, however, the Commission’s theory with regard to harm was reduction in incentives to invest and not
83 OECD (
), p. 70; Rey (
), pp. 27–28.
84 Rey (
), pp. 28–30.
approaches, in this section these mergers are categorised in two groups and the
emerging analytical framework assessed with regard to four noteworthy issues:
theories of harm; use of quantitative tools; assessment of mavericks; and design of
remedies in telecoms mergers. Section 4.1 presents the approach in H3G/Orange
Austria, H3G Ireland/O2 and Telef o´nica Deutschland/E-plus, which are summarised
in Sect. 4.1.4; Sect. 4.2 addresses TeliaSonera/Telenor JV, H3G UK/Telefo´ nica UK
and H3G Italy/WIND/JV, which are summarised in Sect. 4.2.4.
4.1 H3G/Orange Austria, H3G Ireland/O2 and Telefo´ nica Deutschland/E-plus
This section looks at three four-to-three mergers (H3G/Orange Austria, H3G
Ireland/O2 and Telef o´nica Deutschland/E-plus) that received conditional clearance
during the term of Commissioner Almunia. The mergers concerned three very
important and highly competitive markets in the EU: Austria, Ireland and Germany.
Of particular noteworthiness in these three mergers is the innovativeness of the
design of merger remedies.
4.1.1 Theory of Harm and Use of Quantitative Techniques
H3G/Orange Austria involved the acquisition of Orange by H3G. The other two
MNOs in the market were Telecom Austria (with its A1 brand) and T-Mobile. H3G
and Orange were identified as ‘‘close competitors’ with regard to pricing and tariff
structures as well as the ranges of smartphones and data services offered. The
Commission used evidence from surveys, market data and econometric simulations
to assess the closeness of competition between them. Gross upward pricing pressure
index (GUPPI)85 was used for the first time in a phase-II merger analysis to assess
the impact of a concentration on retail mobile prices. Overall the evidence indicated
that the merger would lead to significant unilateral effects.86
In Telef o´nica Deutschland/E-Plus Telefo´ nica Deutschland acquired sole control
over E-Plus, leading to the creation of the third-largest MNO in terms of overall
retail revenues.87 The merger led to there being three MNOs of equal size in the
German mobile telecommunications market, the other two being Deutsch Telekom
and Vodafone.88 The merger was expected to significantly impede effective
competition, as it generated non-co-ordinated effects in the retail market for mobile
telecommunications and wholesale market for access and call origination and
international roaming.89 Merger simulations, market investigations and internal
documents indicated that Telefo´ nica and E-Plus were ‘‘close competitors’’.90 The
85 GUPPI is a quantitative technique used to assess the incentives of a merged entity, in the absence of
any synergies, to unilaterally increase prices following a merger.
86 Hutchison 3G Austria/Orange Austria (Case COMP/M.6497), Commission Decision,  OJ C224/
12, at paras. 175–249.
87 Telefo´nica Deutschland/E-Plus (Case M.7018), Commission Decision,  OJ C086/7, at para. 254.
88 Ibid., at paras. 211–13.
89 Ibid., at paras. 102–03.
90 Ibid., at paras. 232–320.
Commission’s quantitative analysis was based on the ‘‘Bertrand Nash model in a
differentiated products industry’’, whereby firms compete in a differentiated
products industry and set prices at a level that maximises their profits.91 Upward
Pricing Analysis (UPP) and ‘‘demand estimation-based simulation’’ indicated that
the merger would not only intensify the merged parties’ incentives to increase
prices, it would also induce competitors to increase their retail prices.92
Hutchison 3G UK/Telefo´ nica Ireland (O2) was a merger between O2 (the second
largest MNO) and H3G (the last MNO entrant and a ‘‘challenger brand’’) to create
the second-biggest MNO in the Irish mobile market and generating substantial
unilateral effects in the retail and wholesale market.93 Eircom and Vodafone were
the other two MNOs active in the Irish market.
4.1.2 Loss of a Maverick and ‘‘Market Stabilisation’’
In H3G/Orange Austria H3G was identified as a ‘‘modern, innovative’’ MNO that
had in the past disrupted the market by being the first to offer various innovative
services, had the best network quality, offered aggressive price-based competition
and followed a data-focussed strategy.94 The disappearance of H3G was expected to
result in ‘‘stabilisation of the market’’ and, absent substantial efficiency gains, to
result in diminished incentives for H3G to continue competing aggressively in the
market.95 Quantitative evidence indicated that H3G was a more significant
competitive force than its market share showed.96 After the merger it was unlikely
that a new MNO could enter the Austrian market in the short term.97 MVNOs that
could ‘‘discipline prices at the retail level’’ were far and few in between, as the
incumbent MNOs had raised ‘‘artificially high barriers to entry’’ by ‘‘protecting their
retail business through high wholesale access fees’’ and, in some instances, outright
refusal to enter into wholesale negotiations with MVNOs. This overall resulted in an
enormous ‘‘market failure’’.98 Additionally, to operate as an MVNO in Austria
potential entrants either required ‘‘access to the portability database’’, which
involved substantial investment and a lengthy period of time, or, alternatively,
needed to enter into an access agreement with an existing MNO.99 Considering that
Orange was the ‘‘only’’ one of the four MNOs to offer that service, in the absence of
suitable remedies, after the merger it was highly unlikely that an MNO, or even an
MVNO, could enter the market.100
91 Ibid., Annex A: The Commission’s Quantitative Analysis, Section 2 Common Framework:
BertrandNash Competition in Differentiated Products, at para. 17.
92 Ibid., paras 736–72.
93 Hutchison 3G Ireland/Telefo´nica Ireland, supra note 49, at paras. 47 and 62–65.
94 Hutchison 3G Austria/Orange Austria, supra note 86, at paras. 254–65.
95 Ibid., at paras. 283–84.
96 Ibid., at paras. 264–65.
97 Ibid., at paras. 293–94.
98 Ibid., at paras. 295–98.
99 Ibid., at para. 299.
100 Ibid., at para. 300.
In Telefo´ nica Deutschland/E-Plus, where MVNOs and service providers enjoyed
a significant market presence, the Commission was of the opinion that MVNOs
could potentially over time upgrade themselves to MNOs. Competitive assessment
indicated that the dependence of those fringe players on MNOs to receive wholesale
access, as well as the prevalent pay-as-you-go model, diminished their incentives to
engage in aggressive retail competition.101
In H3G UK/Telefo´ nica Ireland H3G was identified as an important competitive
constraint. It had in the past offered various disruptive offers at the retail level, such
as ‘‘all-you-can-eat’’ data plans that offered unlimited data packages under certain
specific conditions. That had prompted competitors to come up with equally
attractive bundles. The merger was expected to eliminate this important competitive
constraint and generate the much needed ‘‘market equilibrium’’. Elimination of
H3G was expected to weaken the pressure on O2 as well as diminishing the
competitive pressure on the other MNOs. At the wholesale level H3G and O2
competed aggressively to offer access to the MVNOs. Vodafone offered MVNOs
access to its networks to a limited extent. Eircom was further subject to hold-up
problems due to the adverse impact on its NSA with H3G, which meant that in the
near future it had limited ability to offer access to MVNOs. Reduced competition at
the wholesale level was further expected to devitalise competition at the retail
4.1.3 Merger Remedies
The Commission cleared H3G/Orange Austria upon the submission of the following
remedies. The parties entered into an upfront MVNO agreement with UPC that
ensured its entry as a full MVNO.103 The parties also offered to provide wholesale
access on competitive terms and conditions to up to 16 MVNOs over the next
10 years to more than 30% of H3G’s network capacity.104 To resolve any incidental
disputes a fast-track dispute resolution mechanism was proposed.105 H3G also
offered to divest 2 9 10 MHz of spectrum in the 2600 MHz frequency band (the
divestment spectrum) to a new entrant.106 That spectrum – which was best for the
provision of 4G services – was reserved to be sold alongside a forthcoming
spectrum auction by Telekom-Control-Kommission (the ‘‘TCK’’), the Austrian
telecoms regulator. The merger was conditional upon the sale of Orange’s Yesss!
Telekommunikation subsidiary to A1 Telekom Austria, that sale being subject to the
jurisdiction of the Austrian competition authority, the Bundeswettbewebsbeho¨ rde.
H3G also offered to sell spectrum and some assets to A1. Those incidental
transactions were subject to review by the TCK.107
101 Telefo´nica Deutschland/E-Plus, supra note 87, at paras. 845–46 and 1303.
102 Hutchison 3G Ireland/Telefo´nica Ireland, supra note 49, at paras. 179–86.
103 Hutchison 3G Austria/Orange Austria, supra note 86, at paras. 520–21.
104 Ibid., at paras. 522–25.
105 Ibid., at para. 547.
106 Ibid., at para. 526.
107 Bavasso and Long (2012).
In Telefo´ nica Deutschland/E-Plus the parties offered a package of commitments
consisting of three components: an MNO remedy, a mobile bitstream access (MBA)
remedy and a non-MNO remedy.108 Under the MNO remedy the parties were to
enter into an MNO agreement with a potential entrant and if no potential entrant
agreed to enter the market, they were to enter into an agreement with an upfront
MBA MVNO.109 According to the commitment a new MNO entrant or an MVNO
was to be provided with offers regarding: a lease for 10 MHz of paired spectrum in
the 2.6 GHz band, national roaming, access to sites and passive radio access
network sharing.110 The MBA remedy had two components: an obligatory purchase
commitment and an optional capacity commitment. Under the obligatory
commitment Telefo´ nica was to offer at least one upfront MBA MVNO 20% of the total
capacity (for each of data, voice and SMS) of its network according to a specified
glide path. The MBA MVNO also had an option to purchase an additional capacity,
equal to another 10%, on similar terms and conditions.111 In the non-MNO remedy
the notifying party offered to remove any contractual restraints that restricted
migration of customers from one MNO to another as well as any restrictions that
prevented MVNOs from switching their business models. The parties also offered to
enter into wholesale contracts with new MVNOs and service providers.112
In H3G UK/Telefo´ nica Ireland the parties offered commitments that sought to
reinstate the loss of competitive constraint exerted by H3G and to ‘‘preserve the
premerger state of competition in the market’’.113As part of the MVNO entry
commitment the parties offered to enter into an ‘‘upfront capacity agreement’’ at a
fixed price with a pre-approved MVNO. The upfront MVNO was to be offered the
option to acquire 48, a sub-brand of O2 or its customer base.114 The parties also
offered to enter into ‘‘good faith negotiations’’ with a potential second MVNO
during the ‘‘MVNO Entry Period’’. If they failed to enter into a capacity agreement
during that period, the divestiture trustee had the authority to offer the capacity for
allocation to all potential MVNO entrants at a pre-agreed minimum price.115 Under
the final MNO commitment, the parties offered the upfront MVNO or the second
MVNO an option to acquire five blocks of spectrum in the very attractive 1800,
2100 and 900 MHz spectrums. The MVNOs had a 10-year period in which to enter
into negotiations with the merged entity. To be eligible to buy that spectrum the
MVNOs had to satisfy the monitoring trustee that they had a concrete business plan
to effectively deploy the same.116 Following an acquisition of spectrum the
acquiring MVNO had the freedom to roll-out its own network, in accordance with
its commercial objectives, and in the interim transitional period it could also benefit
108 Telefo´nica Deutschland/E–Plus, supra note 87, at paras. 1303–67.
109 Ibid., at paras 1359–60.
110 Ibid., at paras. 1359–65.
111 Ibid., at paras. 1368–69.
112 Ibid., at paras. 1399–1400.
113 Hutchison 3G Ireland/Telefo´nica Ireland, supra note 49, at para. 916.
114 Ibid., at para. 976.
116 Ibid., at para. 977.
from a respective capacity agreement with the merged entity.117 As part of the ‘‘final
Eircom commitment’’ the parties offered to amend the existing ‘‘Mosiac NSA’’ in
accordance with a memorandum of understanding submitted along with the final
commitments.118 This offered Eircom two options: either it could conclude a new
strengthened NSA or it could enter into an alternative NSA with Vodafone, the
other MNO in Ireland.119
In all the three mergers ‘‘unilateral effects’’ were identified as the principal theory of
harm. H3G UK/Telefo´ nica Ireland is particularly noteworthy, as it did not lead to
the creation or strengthening of a (single) dominant position but was nonetheless
expected to result in a significant impediment to effective competition (SIEC) in the
retail mobile market and the wholesale market for network access and call
origination.120 This is reflective of the ‘‘effects-based approach’’ of the Commission
under the 2004 Regulation, which closed the legislative gap for assessment of
unilateral effects as it had existed in the previous 1989 Regulation.121
As was noted in Sect. 2, ever since the onset of deregulation the achieving of a
‘‘single digital market’’ has been the preferred goal of the Commission. H3G/
Orange Austria was identified as a trend-advancing certainty in the Commission’s
efforts to achieve the ‘‘single telecoms market’’, as it expected MNOs to first
consolidate in national markets and then inorganically develop a presence in other
During the term of Commissioner Almunia the Commission pursued that
objective and showed some consistent trends in its assessment of four-to-three
telecoms mergers and a very innovative approach in the design of remedies.
The remedies reflect the special attention devoted to the somewhat complex
relationship between MNOs, MVNOs and NSAs. Of particular noteworthiness is the
impressiveness of the remedial design in Telefo´ nica Deutschland/E-Plus and H3G
UK/Telefo´ nica Ireland, where each one of the challenges in this complex
relationship, as discussed in Sect. 3 above, are well addressed. The remedies take
due account of the challenges associated with restrictive access agreements and
restricting contractual clauses that limit the ability of MVNOs to compete
aggressively at the retail level. Additionally, the remedies also take due account
of entry barriers, such as the substantial time period, access to spectrum, incentives
to compete and the critical customer base that an MVNO must have in order to over
time upgrade itself to an MNO.
118 Ibid., at paras. 901 and 978.
119 Ibid., at paras. 1007–1011.
120 Ibid., at paras. 179–86.
121 Lindsay and Berridge (2012), pp. 42–55.
122 Stoyanova-Sieber (2013), pp. 432–33.
4.2 TeliaSonera/Telenor JV, H3G UK/Telefo´ nica UK and H3G Italy/WIND/JV
This section focuses, along similar lines as in Sect. 4.1 above, on three more recent
four-to-three mobile mergers (TeliaSonera/Telenor JV, H3G UK/Telef o´nica UK
and H3G Italy/WIND/JV), which the Commission was notified of during the term of
new Commissioner Vestager, and tries to identify emerging trends for future
4.2.1 Theory of Harm and Use of Quantitative Techniques
The proposed joint venture between TeliaSonera and Telenor combined the
secondand third-largest MNOs in the Danish market.123 TeliaSonera and Telenor were also
members of a common network sharing agreement, TT-netvaerket. The merger was
expected to lead to a duopoly between TDC and TeliaSonera/Telenor and the
marginalisation of Hi3G, an effective competitive constraint in the Danish
market.124 The Commission worked closely with the Danish competition authority
to carry out a customer survey to identify the preferences of marginal customers.125
This robust and reliable data was then used to quantify the post-merger price effects
through a demand-estimation-based merger simulation.126
H3G UK/Telefo´ nica UK was a merger between the second- and fourth-largest
MNOs in terms of revenue and number of subscribers, respectively, covering
together more than 40% of all mobile customers in the UK. O2 was also the largest
supplier of wholesale access to non-MNOs.127 The merger was expected to have
adverse horizontal effects on the retail market for the provision of mobile
telecommunications services and the market for wholesale access and call
origination on public mobile telephone networks in the UK. Diversion ratios
indicated that the merging parties were viewed as the best alternatives for one
another,128 considering that the other two MNOs (Vodafone and EE) were
traditionally known to focus on ‘‘value generation and customer retention’’.129 The
merger also had adverse vertical effects on the retail market for the provision of
mobile telecommunications services (the downstream market) and the wholesale
market (the upstream market).130 The four MNOs participated in complex
intertwined NSAs: while EE and H3G were members of Mobile Broadband Network
Limited (MBNL), Vodafone and Telef o´nica were members of the Beacon
arrangement. The merger was expected to adversely affect at least one of the two
123 TeliaSonera/Telenor/JV, supra note 4.
124 Thomas (
125 Marginal customers should be differentiated from core customers. It is argued that following price
increases marginal customers are most likely to switch to substitute products and services.
126 Competition Merger Brief 3/2016, p. 5.
127 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 115.
128 Ibid., at paras. 461–66.
129 Ibid., at para. 953.
130 Ibid., at paras. 306–07.
NSAs.131 The complexity of the NSAs meant that contractual undertakings would
not be sufficient to solve these problems. The merger reduced the incentives for
Vodafone and BT/EE to invest in networks and, therefore, adversely affected
At the time of the notification of H3G Italy/WIND/JV the Italian
telecommunications market had four MNOs (H3G Italy, WIND, Vodafone and TIM) alongside
a number of MVNOs.133 The merger adversely influenced competition in the market
for the provision of retail mobile telecoms services and wholesale services for
access and call origination on mobile networks.134 The loss of H3G as an important
competitive force increased symmetries in the market shares of the remaining
MNOs and enhanced the post-merger alignment of incentives and the ability to
monitor, observe and punish deviation from co-ordination, which meant that
following the merger the MNOs could ‘‘co-ordinate and raise prices in a sustainable
way’’.135 The merger was also likely to lead to non-co-ordinated effects on
competition in the wholesale market.136 To assess the ‘‘closeness of competition’’
between WIND and H3G the Commission used various tools, such as market
investigation, internal documents and diversion ratios.137
4.2.2 Loss of a Maverick and ‘‘Market Stabilisation’’
In H3G UK/Telefo´ nica UK both qualitative as well as quantitative evidence indicated
that H3G was an ‘‘important competitive constraint’’ that prompted competitors to
offer aggressive subscriptions at cheaper rates.138 H3G had in the past offered many
innovative offers, such as an extremely disruptive data monetisation and roaming
proposition that offered the ability to ‘‘stay connected while travelling without the risk
of bill shock’’. The offer was so disruptive that, despite its small size, H3G had
generated a ‘‘disproportionate impact on the market’’ and the other MNOs had been
forced to respond with equally competitive offers.139 It also offered 4G services at ‘‘no
extra cost’’. The other three MNOs had previously positioned 4G as a premium
service. The offer generated a price war and led market analysts to describe H3G as a
‘‘disruptor-slash-gadfly’’.140 In addition to retail competition H3G also disrupted
wholesale competition, as it not only offered access to all types of MVNOs, including
mass-market MVNOs, but it had also created its own global MVNE platform that
promised to offer wholesale access and end-to-end services to MVNOs.141
131 Ibid., at paras. 1239–49.
132 Ibid., at paras. 1241–92.
133 Hutchison 3G Italy/Wind/JV, supra note 25, at paras. 27–67.
134 Ibid., at para. 228.
135 Ibid., at paras. 1208–11.
136 Ibid., at paras. 1348–49.
137 Ibid., at paras. 784–85.
138 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 953–57.
139 Ibid., at paras. 497–536.
140 Ibid., at paras. 553–72.
141 Ibid., at paras. 2064–73.
In H3G Italy/WIND/JV, being the smaller of the four players, WIND and H3G
had been particularly aggressive in their pricing policies. That had in turn generated
immense competitive pressure on the other MNOs to match them with equally
attractive offers. The removal of H3G as an independent competitor was expected to
align the incentives of MNOs and to increase their ability to engage in co-ordinated
conduct on a sustainable basis.142
With the Italian retail market being an oligopolistic market with high barriers to
entry, the loss of competition between H3G and WIND was expected to result in
‘‘market repair’’,143 meaning that after the merger H3G/WIND JV, TIM and
Vodafone would ‘‘compete less aggressively’’ against one another.144
4.2.3 Merger Remedies
In TeliaSonera/Telenor the Commission’s investigation lasted for more than seven
months, with two rounds of remedies submitted by the parties.145 The remedies
included, inter alia, access for a new market entrant to almost ‘‘40% of [the parties’]
joint infrastructure’’.146 The Commission found that the remedies were insufficient
to alleviate the adverse impact on competition. Seeing no hope of receiving the
Commission’s approval the notification was eventually withdrawn by the parties.147
In H3G UK/Telefo´ nica UK the proposed remedies consisted of four principal
components: (1) the Tesco Mobile commitment; (2) the new entrant operator
(‘‘NEO’’) commitment; (3) the network sharing commitment; and (4) the wholesale
market commitment.148 The parties offered to divest O2’s stake in Tesco Mobile so as
to create an independent MVNO.149 The NEO commitment was an upfront
commitment to offer access to O2’s network, in the form of a ‘‘perpetual fractional
network interest’’, so as to facilitate the entry of an NEO.150 Tesco Mobile and the
NEO were to be offered access to a percentage of the joint network capacity of O2 and
H3G.151 NEO was to be offered a capacity-based wholesale access, which was similar
to the cost structure of the MNOs and, thereby, expected to maximise the NEO’s
incentives to compete by optimally utilising the available capacity. According to the
network sharing commitment the parties were to implement a ‘‘network integration
plan’’ whereby the parties were to commit to using a certain fixed percentage from the
Beacon grid and MBNL sites on a regular basis. The parties also committed to have
firewalls in place with respect to the two NSAs.152 In case of disputes concerning
142 Hutchison 3G Italy/Wind/JV, supra note 25, at para. 981.
143 Ibid., at paras. 327–57.
144 Ibid., at paras. 813–55.
145 Thomas (
147 Jungermann (
148 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 2876.
149 Ibid., at para. 2734.
150 Ibid., at paras. 2645 and 2888–96.
151 Ibid., at paras. 2878.
152 Ibid., at paras 2967–68 and 2644–47.
‘‘investment-related decisions’’ in the MBNL NSA agreement or the NEO
commitment, the parties proposed a fast-track dispute resolution procedure.153 The wholesale
market commitment offered an equivalent ‘‘quality of service’’, as well as 4G and 5G
services, to MVNOs. With regard to their existing MVNO customers the Parties
committed to offer 4G and 5G services at the same rate as they charged for 3G
services.154 However, the Commission found the commitments to be insufficient to
effectively alleviate its competition concerns and decided to prohibit the merger.
In H3G Italy/WIND/JV the parties proposed a fix-it-first remedy in which Iliad,
an active MNO in the French market, agreed to purchase the divested assets and
spectrum. The MNO commitment specified in detail the spectrum to be divested, the
procedure and timeline for divestment, the sites to be divested, and the pricing
model to be used for offering access to the network.155 It also offered the new MNO
entrant an option to enter into an RAN-sharing agreement which ensured immediate
coverage of the least populated areas in a cost-effective manner.156 Moreover, there
were no contractual restrictions on the new MNO offering wholesale access to
MVNOs.157 In the short run the new MNO was offered an attractive pricing model,
which ensured that it could offer wholesale access to MVNOs at very competitive
terms from the outset.158 In the long run it was expected that the new MNO would
make ‘‘significant progress in rolling out its own network’’.159
In TeliaSonera/Telenor, pending the Commission’s investigation, Commissioner
Vestager, in an interview with the Financial Times, observed that the reaction of the
stock market was an indicator of potential post-merger anti-competitive effects.160
Stock market data had been previously used in prominent econometric studies to
evaluate the effectiveness of EU merger control.161 Interpretation of signals and the
response of the stock market can be viewed as a step forward in utilising more
quantitative techniques in EU merger control.
In addition to unilateral effects, in this second set of four-to-three mergers
vertical anti-competitive effects and potential co-ordinated effects are also assessed
in great detail, in H3G UK/Telef o´nica UK and H3G Italy/WIND/JV, respectively.
The text in Sect. 3 (supra) presents the principles of industrial organisation (IO) and
game theory162 and makes clear the conditions under which a vertically integrated
153 Ibid., at paras 2962 and 2893.
154 Ibid., at paras 2912–13.
155 Hutchison 3G Italy/Wind/JV, supra note 25, at paras. 1739–99.
156 Ibid., at para. 1767.
157 Ibid., at para. 1786.
158 Ibid., at paras. 1789–91.
159 Ibid., at paras. 1788 and 1792.
160 Oliver (
161 Duso et al. (2003).
162 Game theory may be defined as economic and mathematical modelling of conflict and co-operation
between intelligent and rational decision-makers. See Myerson (1997).
oligopolist may refuse to offer access to downstream competitors and the
circumstances under which an oligopoly is likely to exhibit co-ordinated conduct.
With regard to H3G UK/Telefo´ nica UK, to make the discussion comprehensive
and well-rounded, reference must be made to the UK CMA’s decision in BT/EE.
The CMA, following a detailed phase-II inquiry, unconditionally cleared the BT/EE
merger: a merger between BT, the largest supplier of fixed-line services and other
telecommunications services, including an MVNO; and EE, an MNO. Before the
merger BT’s MVNO was hosted on EE’s network. The parties’ activities in the
provision of retail mobile and fixed communications services overlapped. BT also
had a TV network and EE had recently launched a TV network that was expected to
compete with BT’s.163 The CMA considered ten theories of harm, of which eight
were studied in significant detail. It assessed the impact of the transaction on the
supply of wholesale mobile services, and investigated whether the merged BT/EE
could engage in total or partial foreclosure, and reached the conclusion that, even
though the merged entity had the ability to harm fixed MVNOs by not bidding for
wholesale access or by engaging in input foreclosure of rival MNOs for managed
fibre mobile backhaul services or customer foreclosure for MBNL, the presence of
four MNOs limited its incentives to engage in either input or customer foreclose.164
The conglomerate effects in the context of F/M bundling were also assessed: the
CMA was of the opinion that the merger did not offer BT a unique competitive
advantage that the other telecoms operators could not replicate.165 As the BT/EE
merger was not expected to result in substantial lessening of competition in the
retail or wholesale mobile market, the merger received unconditional clearance. In
its assessment of the H3G UK/Telefo´ nica UK merger the European Commission
took due account of the CMA’s decision in BT/EE.
What is particularly intriguing is that even though both of those mergers
concerned the same relevant market, i.e. the market for mobile telecommunications
in the UK, and even though the Commission was notified of H3G UK/Telef o´nica
before BT/EE was referred to the CMA and H3G UK submitted substantial
remedies to obtain the Commission’s approval, whereas BT/EE was approved
unconditionally by the CMA, the European Commission prohibited H3G UK/
Telefo´ nica UK. The inordinate delay in the Commission’s assessment of H3G UK/
Telefo´ nica and the Commission taking due account of the CMA’s decision in BT/
EE raises questions with regard to substantial aspects of EU merger control. The
approach is plainly inconsistent with the Commission’s own recent approach when
assessing two recent HDD166 mergers (Samsung/Seagate and Western Digital/
Hitachi). The Commission was notified of those mergers almost simultaneously,
with notification regarding the former being provided on 19 April 2011 and the
latter on 20 April 2011. The Commission, following the ‘‘priority-based principle’’,
first assessed and unconditionally cleared Samsung/Seagate without even issuing a
163 Jungermann (
164 UK CMA, BT/EE, at paras. 14.28 and 14.45.
165 Ibid., at paras. 16–17.
166 HDD refers to Hard Disk Drive. HDDs are magnetic data storage and retrieval devices to store digital
information. See Arpaci-Dusseau and Arpaci-Dusseau (
statement of objections to the merging parties.167 Western Digital/Hitachi was
assessed subsequently and, following a detailed phase-II review, received
conditional clearance. Clearly the unconditional clearance of Samsung/Seagate had a
substantial impact on the Commission’s assessment of Western Digital/Hitachi. At
the time consistency and coherence in the application of merger control was cited as
a reason for the application of priority-based ruling.168
Non-conformity with its own prior practice – particularly when the two sets of
mergers belong to a similar, if not the same, industry, i.e. ICT and
telecommunications – reflects an inconsistency in the Commission’s approach. H3G UK/
Telefo´ nica UK is currently pending appeal before the General Court.169
In H3G Italy/WIND/JV the dependence of MVNOs on MNOs for access and
restrictive MVNO clauses meant that they could not effectively replace the loss of
an MNO.170 Similar issues were identified in the three cases discussed in Sect. 4.1
above. Worthy of note is the difference in the remedial approaches to comparable
competition concerns in these two sets of telecommunications mergers, an issue
which this article looks at next.
5 Summary and Emerging Trends
This section outlines emerging trends for future telecoms mergers. Firstly the
section presents some challenges that merit further research with regard to
non-coordinated or unilateral effects and mavericks (Sect. 5.1) and, secondly, the elusive
magic number of MNOs and designs for remedies in telecoms mergers (Sect. 5.2).
5.1 Unilateral Effects and Mavericks
For non-co-ordinated effects to arise the merging parties should compete closely in
the relevant market. The more closely they compete, the more likely, and to a
greater extent, the merger is likely to reduce the competitive pressure.171 Two issues
merit attention: one is the use of qualitative techniques for a finding of unilateral
effects; the other is that in the EU it suffices when the parties are one another’s close
competitors.172 That standard is much lighter when compared with the US standard,
where for a finding of a unilateral effect the parties need to be one another’s ‘‘closest
competitors’’. In both sets of the cases described in Sects. 4.1 and 4.2 unilateral
effects have been identified on the basis of ‘‘closeness of competition’’.
167 Seagate/HDD Business of Samsung (Case COMP/M.6214), Commission Decision,  OJ C154/
08, at paras. 6–11.
168 Western Digital/Hitachi (Case COMP/M.6203), Commission Decision,  OJ C241/11, at paras.
169 GC, Case No. T–399/16, CK Telecoms UK Investments Ltd v European Commission (Currently
170 Hutchison 3G Italy/WIND/JV, supra note 25, at paras. 865–899.
171 EU Horizontal Merger Guidelines 2004, at paras. 17, 26 and 28–30.
172 Buettner (2016), p. 692.
In all of the cases discussed above the Commission identified a new or the latest
player as the maverick. Economic theory suggests that this behaviour exists due to
the ‘‘excess capacity’’ of the new entrant and lasts during the period of transition. It
may be referred to as the ‘‘tatoˆ nnement process’’, as the entry of a new player
disrupts the prevailing equilibrium and the market participants try, collectively, to
reach a ‘‘new focal point’’.173 Additionally, in four of the six cases discussed above
H3G174 was identified as the maverick. This makes one wonder whether
‘‘mavericklike’’ behaviour is a conscious business strategy of H3G and it may actually be
pursuing the Commission’s long cherished objective of bringing about the single
telecoms market. Inter-disciplinary research, with inputs from economics and
corporate strategy, may offer valuable insights into the behaviour of mavericks such
as H3G. That can in turn offer valuable insights for competitive assessment of
mavericks in telecoms mergers.
5.2 The Magic Number of MNOs and the Magic of Remedies
As regards what the optimum number of MNOs in a given market is, as noted by
Commissioner Vestager, there are no magic numbers. During the term of
Commissioner Almunia that number appeared to be three, with many four-to-three
mergers receiving conditional clearance. During the term of Commissioner Vestager
that number appears to be four. The approach of the competition authorities is also
significantly influenced by the size of the relevant geographic market. In this regard,
the approach of national competition authorities (NCAs) merits attention. In
Switzerland, considering the size of the market, where four MNOs would be
practically impossible to sustain, and two operators could lead to collective
dominance, the Swiss Competition Commission (the Wettbewerbsbeh o¨rde) found
three to be the optimum number and prohibited a three-to-two merger between
Orange and Sunrise.175 The Swiss Commission’s analysis indicated that the merger
would lead to the loss of a maverick as well as a position of collective dominance
for the merged parties and Swisscom in the retail market and the market for
wholesale access – a competitive harm that could not be alleviated by any set of
remedies.176 This argument finds support in a study of the French mobile market,
where the French competition authority (the Autorite´ de la concurrence) noted that
even when the strict conditions of Airtours/Firstchoice were not met, there was
sufficient evidence that indicated a collective interest of the MNOs in a three-MNO
market to refrain from offering wholesale access to MVNOs on favourable terms.177
In H3G UK/Telef o´nica UK, as discussed above, the CMA and Ofcom in their
submissions to the European Commission consistently maintained the position that
173 Rey (
), pp. 102–103.
174 This article consistently refers to Hutchison 3G as H3G in order to highlight the role of the parent
company CK Telecoms UK Investments Ltd in pursuing a uniform disruptive strategy across the
European Union. H3G currently operates under the brand name ‘‘Three’’ or ‘‘3’’.
175 Swiss Competition Commission, France Te´le´com SA/Sunrise Communications AG, at para. 429.
176 Ibid., at para 428.
177 French Conseil de la concurrence 2008, at paras. 22 and, 98.
four was the magic number of MNOs required to preserve the competitiveness of
UK mobile market.
An OECD study on network sharing observed that even though four-MNO
markets are generally more competitive, there is no actual ‘‘golden number’’ of
MNOs that can ensure competitive markets. It is the ‘‘intensity of competition’’ that
is the key to competitive markets. In Portugal, which is a three-MNO market,
consumers have in the past benefited from many disruptive offers, such as a
‘‘premium roaming offer’’, on account of aggressive retail competition.178
Economic theory suggests that the prisoner’s dilemma that eventually prompts
MNOs to offer wholesale access to MVNOs is evident in a market with three or
more MNOs, where the additional revenue effects far outweigh the competitive
constraint imposed by an MVNO.179 In a market with three or more MNOs, MNOs
voluntarily offer wholesale access to MVNOs under both the Cournot and Bertrand
model of competition.180 Overall, whether three, four or three and a half is the
optimum number remains a debatable issue, both from the perspective of
competition policy and economics.
Recent decisions of the Commission underscore that its decisions are influenced
significantly by what it seeks to achieve from the remedies. As is shown in Sect. 4
above, the major differentiating factor in terms of the Commission’s approach in the
two sets of mergers has been with regard to design of remedies.
Commissioner Almunia cleared many four-to-three mergers when the parties
thereto offered commitments that ensured the competitiveness of wholesale markets
and offered a ‘‘potential’’ for MVNOs to upgrade themselves to MNOs. In H3G/
Orange Austria the commitments ensured an upfront new MVNO entry and lowered
entry barriers for ‘‘both groups of potential competitors’’, i.e. MNOs as well as
MVNOs.181 The commitments offered ‘‘the opportunity for a new MVNO to
emerge’’ and also pointed out the potential for MVNOs to upgrade themselves to
MNOs.182 In Telefo´ nica Deutschland/E-Plus the MNO remedy sought to create a
fourth competing MNO. The MBA MVNO remedy sought to generate ‘‘aggressive
competition’’ that would offset the loss of competition resulting from the
elimination of E-Plus.183 The non-MNO remedy sought to make the wholesale
market more competitive. In H3G UK/Telefo´ nica Ireland it was expected that the
entry of two new MVNOs within a reasonable timeframe, as well as the certainty of
Eircom’s quick evolution into a credible MVNO host, would ensure vibrant retail
and wholesale competition.184
Considering the substantial sunk costs in telecoms, 2–3 years may be a very short
timeframe to assess the effectiveness of the above-mentioned remedies. However,
ex-post studies and emerging evidence from enforcement of the aforementioned
178 OECD (
), pp. 8 and 18.
179 Dewenter and Haucap (2006), pp. 324–326.
181 Hutchison 3G Austria/Orange Austria, supra note 86, at para. 539.
182 Ibid., at paras. 540–44.
183 Telefo´nica Deutschland/E–Plus, supra note 87, at para. 1390.
184 Hutchison 3G Ireland/Telefo´nica Ireland, supra note 49, at paras. 1022–26.
remedies had a significant influence on the approach of the Commission in
subsequent four-to-three mergers.
With reference to TeliaSonera/Telenor, Commission Vestager highlighted the
Commission’s prohibition decision as good for retaining the competitiveness of the
Danish telecoms market.185 Considering the significance of the competition
concerns, i.e. a substantial impediment to price and innovation-based competition
in the Danish telecoms market, in the opinion of competition Commissioner
Vestager, herself a Danish citizen, the merger required an ‘‘equally significant
remedy’’, which meant the ‘‘creation of a fourth MNO’’.186
The need for the creation of a fourth MNO was underlined in the light of
emerging evidence, including an ex-post econometric study by the Austrian
Telecoms regulator, the Bundeswettbewerbsbeho¨ rde, highlighting that the
four-tothree H3G/Orange Austria merger led to an overall 14–20% increase in prices in the
short term.187 However, about 3 years later prices had returned to their pre-merger
levels.188 The Commission’s decision in TeliaSonera/Telenor JV, it seems, was
influenced by the short-run price increase in the Austrian market, even though the
study found that the MNOs had failed to sustainably increase prices for a long
period and that the remedies had failed to ensure market entry for more than 2 years
following the merger.189
In H3G UK/Telef o´nica UK the parties submitted a complex set of remedies that
went far ‘‘beyond the commitments accepted by the Commission in earlier mobile
mergers’’.190 The Commission found those commitments to be insufficient to
alleviate the competition concerns for the following reasons. The Tesco Mobile
commitment was found to be inadequate as it was not an upfront commitment;
moreover, the capacity share proposed offered Tesco a very limited ability to
increase its market share.191 The network sharing commitment was found to be
inadequate to effectively address the Commission’s key concerns resulting from
misalignment of interests between the merged entity and its network sharing
partners.192 This misalignment of interests was expected to generate significant
uncertainties, delays and, subsequently, overall low industry-wide investments. The
commitment failed to address with a requisite degree of certainty whether it could
effectively alleviate the resulting harm to the other two MNOs (i.e. Vodafone and
BT/EE).193 The Commission identified challenges with regard to the wholesale
commitment, as it was merely an offer to enter into an agreement with a new
MVNO. Expressions such as old and new MVNOs, benchmarking and unattractive
pricing to MVNOs were defined ambiguously in the proposed commitments. There
185 Speech by Commissioner Vestager dt. (
186 Statement by Commissioner Vestager dt. (
187 Erharter and Gruber (2016), p. 3.
188 Ibid., pp. 4–5.
189 Ibid., p. 4.
190 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 2992.
191 Ibid., at para. 2938.
192 Ibid., at para. 2787.
193 Ibid., at paras. 2803 and 3127.
were also uncertainties concerning wholesale access to MVNOs, meaning it was
uncertain as to which of the two networks were likely to host MVNOs after the
merger.194 As the commitments failed to address the competitive concerns, the
Commission prohibited the merger.195
In H3G Italy/WIND/JV the ‘‘fix-it-first remedy’’ identified Iliad as a clear
purchaser, and this was particularly welcomed by the Commission.196 It helped the
Commission to accurately assess the effectiveness of the remedy, as Iliad met the
‘‘standard purchaser requirements’’ specified in the remedies notice.197 Iliad
qualified as a suitable purchaser because it was independent from the parties, had
sufficient expertise and financial resources to function as an MNO, and neither gave
rise to nor was likely to create any additional competition concerns.198
It may be true that structural remedies, like a surgical operation, clearly address
the issue of market structure; however, behavioural remedies can also offer the
desired ‘‘structural’’ solution by having an effect-based impact on the market
equivalent to an effective medicine.199 It appears that this has been the principle
difference in the approaches of the two Commissioners. For Commissioner Vestager
mere access is not sufficient, a clear divestiture is a more appropriate remedial
Plus c¸a change, plus c’est la meˆme chose.200
The famous French saying meaning that the more things change, the more things
remain the same is a very apt description of trends in the Commission’s assessment
of telecoms mergers. In Gencor/Lonrho the Court of First Instance (now the General
Court) held that the categorisation of remedies as structural or behavioural was
immaterial, instead it was their ability to prevent the ‘‘emergence or strengthening
of a dominant position’’ that was significant.201 Moreover, for remedies to be
effective they should ‘‘just’’ preserve the pre-merger conditions of competition
without affecting any resulting merger-related efficiency gains.202
Following the conditional clearance of a merger that reduced the number of
MNOs from four to three in the EU’s largest market, Telef o´nica Germany/E-Plus
was seen as a signal that the European Commission was willing to accept the
reduction of the number of MNOs in a Member State from four to three, provided
194 Ibid., at paras. 3143–3148.
195 Ibid., at paras. 3149–51.
196 Hutchison 3G Italy/Wind/JV, supra note 25, at para. 1798.
197 Ibid., at para. 1800.
198 Ibid., at paras. 1800–04.
199 Newton and Parker (2005).
200 Karr (
201 GC, Gencor v. Commission, at paras. 318–20.
202 Parker and Balto (2000).
that suitable remedies were proposed that preserved the conditions of competition in
the relevant national market.
Perusal of recent telecoms mergers provides a different narrative, and it appears
that in future the Commission may be unwilling to accept remedies that ‘‘merely’’
offer the potential to make wholesale markets more competitive or ensure an
upfront MVNO entry or an MNO entry over time. Interestingly, the Commission
could foresee the challenges associated with the implementation of MNO remedies,
even though it had previously given conditional clearance to four-to-three mergers.
In Telefo´ nica Deutschland/E-Plus even though the Commission recognised that the
MNO remedy was unlikely to be implemented it eventually did accept that remedy,
on the grounds that the remedy in combination with the ‘‘upcoming frequency
auction’’ by the German regulator (the Bundesnetzagentur) was helpful for keeping
the door open for potential future entrants to the German market.203 Ex-post
analysis highlights that the parties eventually failed to enter into an agreement with
a potential entrant. Telefo´ nica Deutschland finally signed an agreement with
Drillisch, an MVNA, to sell it a minimum of 20% of its future mobile network via
MBA, with a possibility of selling another 10% if Drillisch wished to purchase it.204
In H3G Italy/WIND/JV the identification of an upfront buyer, Iliad, an operating
MNO in the neighbouring French market – that met the ‘‘standard purchaser
requirements’’ of independence, possessed the requisite financial resources and
expertise, and had viable incentives to evolve into an MNO – played a key role in
the Commission’s conditional clearance.
However, divestiture is not as risk-free as the current approach of the
Commission to remedy design may suggest.205 In the same way, behavioural
remedies are not without their own set of limitations. Continuous post-merger
intervention in a market over a period of time can adversely affect the competitive
process.206 A recurrent challenge with divestitures is significant deterioration of the
divested assets to undermine its competitive strength.207 To solve this problem in
the recent telecoms mergers the Commission insisted on an up-front buyer or
fix-itfirst remedy. In future mobile mergers commitments that clearly preserve four
MNOs through divestment and the identification of an ‘‘upfront buyer’’ may play a
decisive role in receiving the approval of the Commission.
Due to the very special nature and characteristics of the sector, such as the
presence of network effects and oligopolistic market structures and the
innovationled nature of the industry, competition authorities face significant challenges in
assessment of anti-competitive effects of telecoms mergers.208 The argument holds
water from the first wave of telecoms mergers in the 1990s, when the EU and US
competition authorities were first confronted with substantial challenges in
assessing every step of a merger review – from the definition of the relevant
203 Telefo´nica Deutschland/E-Plus, supra note 87, at para. 1382.
204 Keil (
205 Papandropoulos and Tajana (2006), p. 447.
206 Ezrachi (2005), p. 3.
207 ICN Merger Remedies Review Project (2005), pp. 8–10.
208 Svetlicinii (2008), p. 37.
market to defining relevant theories of harm to the designing of suitable remedies209
– to the more recent wave discussed in this article. If there were any lessons from
the remedies in the first wave of mergers, it was the challenge in ‘‘integrated
network industries’’ to divest without adversely impacting the competitive strength
of the buyer.210 In WorldCom/MCI the parties sold MCI’s Internet business to
Cable & Wireless, the largest divestiture ever and a remedy at the time well
accepted by both the EU and US competition authorities.211 However, the remedies
subsequently failed to preserve the conditions for competition in the relevant market
for universal Internet connectivity.212 The failure of remedies in WorldCom/MCI
led the Commission to reject similar proposed structural remedies in WorldCom
MCI and Sprint and prohibit the merger.213
Assessed against this backdrop, the remedies in H3G/WIND/JV went a step
further: as first in addition to the divested assets they involve the transfer of
customers to a new MNO entrant. That implies that in addition to the integration of
networks and infrastructure the remedies add substantially to the transaction costs in
terms of gaining the consent of customers.
Second, product differentiation limits the effectiveness and efficiency of
structural remedies, such as carve-outs and divestitures, remedies that transfer
assets from the merged parties to a third entity.214 This is because the amount of
assets that need to be divested to avert any post-merger price increase has a positive
correlation with the degree of product differentiation.215
Third, considering the dynamic nature of the telecommunications sector, the
Commission’s attempt to identify trends with absolute certainty may, in the long
run, prove detrimental to innovation-led competition. Whether F/M mergers, as
distinguished from mobile-only mergers, offer firms a sustainable competitive
advantage is a case in point. That is best underlined by the way in which the
European Commission and the UK’s CMA approached the H3G/Telefo´ nica UK
merger and how the industry analysed that deal. Technically 5G is expected to play
a central role in facilitating convergence, by offering F/M operators the advantage
of ‘‘integrating small cells and Wi-Fi networks into existing macro-cell RANs’’.216
As standardiation of 5G is still in its nascent stage, there seems to be an element of
uncertainty as to whether, strategically speaking, F/M players would have an
advantage over mobile-only players in the near future.217 Taking that uncertainty
into consideration, in the recently approved EE/BT merger the CMA expressed
209 Ibid., p. 23.
210 Ibid., pp. 34–35.
211 World Com/MCI (Case No IV/M.1069); Commission Decision/287/EC,  OJ L116/01; US DOJ
Press Release dt. (1998).
212 Svetlicinii (
), pp. 34–35.
213 European Commission Press Release dt. (2000).
214 Bougette (2010), p. 172.
215 Ibid., pp. 172–173.
216 Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 64.
217 Ibid., at para. 67.
scepticism as to whether F/M players have an advantage over the fixed-only or
mobile-only service providers.218
In the not too distant future growth will come through offering ‘‘bundled
services’’ and different permutations and combination of bundles, as distinguished
from mere mobile telecommunications and data subscription services.219
Additionally, infrastructure-led competition is a long-term objective – and the determination
of the optimum-level of that is a subjective issue which depends upon, amongst
other factors, on the future evolution of market shares and the associated
expectations of the operators to make reasonable returns on their investments.220
So far, in the UK F/M operators have had very limited success, with the largest UK
fixed line operator gaining only 4% of the mobile market.221 However, market
research indicates that this is expected to change by 2020, as quad-play revenues are
expected to triple, as opposed to double-play subscriptions, which are falling.222
The UK’s Ofcom also expects there may be F/M and network convergence over
time, as end-user devices increasingly switch to wireless and networks use fibre to
offer the necessary network capacity.223 In an emerging convergence-led services
market the BT/EE merger positions BT well to cross-sell services, which, along
with its strong fibre and 4G network, may endow it with an unparalleled competitive
strength. Telecommunications firms, such as BT, Sky, TalkTalk, Virgin Media and
Vodafone, do not see any MNO or MVNO as their strongest competitor. Instead, for
them competition emerges from operators that have the ability to offer the most
competitive ‘‘bundled service offerings’’.224
Nonetheless, in H3G UK/Telefo´ nica UK the European Commission took a
different approach. The Commission, based on market study and the submissions
from Ofcom and the CMA, was of the opinion that over the next 2–3 years
acceptance of bundles with a mobile component was not expected to see a
significant increase and therefore decided to prohibit the merger.225
Sluggish uptake due to consumer inertia may be partially explained by the
bounded rationality of the average consumer.226 In the long run neo-classical
economics suggests that rationality would prompt consumers to switch to the most
value-optimising alternative. In a sector which faces long-term investments and
substantial sunk costs, decisions premised on short-run consumer behaviour have
the potential to adversely impact the process of dynamic competition.
As regards merger remedies, there is no text book authority or clear empirical
evidence that may support the superiority of one type of remedies over another.
From the dimension of property rights, whereas structural remedies change the
218 UK CMA, BT/EE, at para. 14.147.
219 Knoll (
), p. 163; Arthur di Little (2017); Pyramid Research (
220 Garzaniti and O’Regan (2010), p. 60.
221 Enders Analysis (
), Hutchison 3G UK/Telefo´nica UK, supra note 24, at para. 76.
222 Blackwell et al. (2016).
223 Hutchison 3G UK/Telefo´nica UK, supra note 24, at paras. 701–702, UK Ofcom (
224 Blackwell et al. (2016).
225 Hutchison 3G UK/Telefo´nica UK, supra note 24, at paras. 77, 91.
226 Drexl (2016), p. 10; Ezrachi (2017), pp. 60–62.
ownership of property rights, behavioural remedies ‘‘only’’ define limits by setting
constraints to the property rights or behaviour of the merging parties.227 The only
conclusion we can safely draw is that the choice and design of remedies is a
casespecific question, which is subject substantially to the relevant market and theory of
harm under deliberation.228 This article makes the following contribution to this
debate that the distinctive nature and the level of convergence and innovation in the
telecommunications sector, which offers the potential to disrupt the very limits of
the relevant markets, merits imperative consideration in the design of remedies to
promote competition and innovation. Additionally, the observation, though made
with reference to the ever-converging telecommunications sector, holds with equal
rigour across the entire Information Communications and Technology sector – an
issue dealt with in greater depth in the second part of this article.
Acknowledgements Open access funding provided by Max Planck Society. I am grateful to Prof. Dr.
Josef Drexl (Director of the Max Planck Institute), Prof. Dr. Peter Picht (University of Zurich) and Prof.
Dr. Subhashish Gupta (the Indian Institute of Management, Bangalore) for their comments and valuable
suggestions on my research. The views expressed in this article, and any errors or omissions, are my own.
Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0
International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use,
distribution, and reproduction in any medium, provided you give appropriate credit to the original
author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were
Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on
unbundled access to the local loop  OJ L 336/4
EU Guidelines and Notices
Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under
Commission Regulation (EC) No 802/2004  OJ C267/01
Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
concentrations between undertakings,  OJ C31/05
227 Papon (
), p. 38.
228 Ibid., p. 48.
Horizontal Merger Guidelines, U.S. Department of Justice and the Federal Trade Commission 
Gencor v. Commission (Case T-102/92)  ECR II-753
CK Telecoms UK Investments v European Commission (Case T-399/16)  OJ C371/12. (Currently
pending appeal before the General Court)
T-Mobile/Orange (Case No COMP/M.5650)  OJ C108/03
Hutchison 3G Austria/Orange Austria (Case COMP/M.6497)  OJ C224/12
Hutchison 3G Ireland/Telefo´nica Ireland (Case No COMP/M6992)  OJ C264/6
Telefo´nica Deutschland/E-Plus (Case M.7018)  OJ C086/7
TeliaSonera/Telenor/JV (Case M.7419)  OJ C 316/01
Hutchison 3G Italy/Wind/JV (Case M.7758)  OJ C 391/05
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