Weekend Edition Nº176

A Consolidation in the European Telecommunications Sector

A Quest for Efficiency Gains Decision of the European Commission of 20 February 2024, Orange/MásMóvil/JV

Jugwal Doyen 1

The electronic communications sector is undergoing structural changes, with the convergence of services between fixed and mobile networks or the roll-out of broadband networks. Mergers between mobile and fixed-line operators have increased efficiency and competition, leading to lower prices. However, regulators and competition authorities have expressed concerns about the reduction of the number of players from four to three in the national telecoms market and therefore the potential for increased tariffs. As a result, where consolidation has been at stake in recent years, mergers have either been approved conditional on asset transfers and the inclusion of mobile virtual network operators or have been prohibited altogether. In this respect, the debate on consolidation and the role of merger law continues and has become more significant than before with the European Commission’s decision in the Orange/MásMóvil/JV and the Court of Justice’s judgment Commission v. CK Telecoms which are relevant in terms of the assessment of a merger in an oligopolistic market and the assessment of the efficiency gains resulting from consolidation. However, the debate cannot end without the European Commission taking a clear stance on the issue of consolidation.

1. Introduction

The optimal structure of the electronic communications market has been debated for several years, and this question already existed before the sector was liberalised in Europe.

At the heart of this issue is the question raised by electronic communications operators as to whether the public authorities are really taking account of the changes taking place in the sector and the investment needed to support these changes, namely the transition from high-speed to very high-speed broadband, with the roll-out of fibre optics for fixed services and 5G networks for mobile services2.

More specifically, the telecoms sector is undergoing a structural change in the way its markets are organised, with the gradual convergence of services between fixed and mobile networks. This convergence is reflected for instance in subscriptions,

1. Jugwal Doyen is an Associate at an international law firm in Paris, where he works for clients in antitrust, merger control, distribution, and regulation law.

2. GSMA and ETNO, Joint Telecom Industry Response to the EU consultation on the future of the electronic communications sector and its infrastructure; and ETNO-GSMA position paper: European Spectrum Policy for the Digital Decade – options for the new Radio spectrum policy programme, 3 July 2023.

which are increasingly taking the form of quadruple-play packages (combining Internet box services and mobile). The economic result of this convergence is that operators can no longer just be fixed or mobile3

Against this backdrop, the mergers that have taken place in Europe in recent years have almost all been aimed at bringing together an operator that originally was mainly mobile with a fixed-line operator. The presence of operators on both sides of the market has made them much more efficient, and the resulting increase in competition has led to a significant reduction in prices, especially on the mobile side4.

While this fall in prices5 has reduced operators’ revenues, the growth in subscriber numbers, particularly for fixed broadband and mobile services, has helped to limit part of the fall in revenues6. It is in this competitive environment that the question of telecoms operators merging, in order to generate economies of scale and increase investment efforts over the long term7, is being raised.

Nevertheless, in general, sector regulators and competition authorities, for their part, have indicated that they do not believe there is any golden or magic number when it comes to the number of players in the telecoms market. Their experience is based, generally, on the transition from four to three operators on the mobile market in Austria, which led to a significant increase in tariffs in 2013 and 20148.

Since then, the European Commission (the ‘Commission’) has either opposed the mergers9 or, more often than not, authorised them on condition that the purchaser, on the one hand, transfers assets (networks, frequencies, customer base) to its competitors and, on the other hand, welcomes several mobile virtual network operators (i.e. operators without a network) (‘MVNOs’) onto its network, reserving them a significant share of their traffic and allowing one of these MVNOs to become independent in the event of a price increase10

Of course, the debate is still going on, as the many articles on the subject over the last ten years and the creation of the joint venture between Orange and MásMóvil (the ‘Joint Venture’) has rekindled it even further.

3. BEREC, Report on the convergence of fixed and mobile networks, BoR (17) 187, 6 October 2017.

4. French Treasury, Arthur Dozias, La concurrence dans le marché français des communications électroniques, N° 321, January 2023.

5. European Commission, Mobile and Fixed broadband prices in Europe, 2021.

6. Arcep, Observatory of electronic communications markets, second quarter 2023, Q2 2023, 5 October 2023.

7. Decision of the European Commission of 11 May 2016, Hutchison 3G UK / Telefonica UK, (case M.7612, OJ C 357, 29.9.2016, pt. 1369-1634).

8. See the Report of the Austrian Competition Authority and of the Telecoms Sector Regulator, Ex-post analysis of the merger between H3G Austria and Orange Austria, March 2016. The Austrian Competition Authority and the Telecoms Sector Regulator have published two reports on the effects of the transition from four to three operators in Austria in 2012. These reports conclude that the merger led to a significant increase in tariffs in 2013 and 2014. In 2015, when several MVNOs entered the market, the study shows that prices started to fall again (but some tariffs are still higher than they were before the merger).

9. See for instance, European Commission, press release on the statement by Commissioner Vestager on announcement by Telenor and TeliaSonera to withdraw from proposed merger (case COMP/M.7419 – TeliaSonera / Telenor).

10. See for instance European Commission decision of 1 September 2016 declaring an operation compatible with the internal market (case COMP/M.7758 – Hutchison / VimpelCom / JV in Italy); Decision of 31 August 2018 declaring an operation compatible with the internal market (case COMP/M.9041 –Hutchison / Wind Tre); Decision of 3 August 2016 declaring an operation compatible with the internal market (case COMP/M.7978 – Vodafone / Liberty Global); Decision of 20 April 2015 declaring an operation compatible with the internal market (case COMP/M.7499 – Altice / PT Portugal).

Sector regulators and competition authorities have indicated that they do not believe there is any golden or magic number when it comes to the number of players in the telecoms market

More fundamentally, discussions on consolidation raise questions about the role of merger law in the face of the political will to consolidate national electronic communications markets. This is why the European Commission’s decision Orange / MásMóvil (‘The “Orange / MásMóvil decision’) (2) could be seen as an indication of the European Commission’s position or the sign of a new trend that needs to be put into perspective with regard to the Court of Justice’s judgment Commission v. CK Telecoms and the differences in position within the European Commission (3).

2. The creation of a Joint Venture in Spain between Orange and MásMóvil

The Orange-MásMóvil decision provides guidance on the Commission’s assessment of a merger in which consolidation is in question with the creation of the largest operator by customer numbers (2.1), and on the way in which the European Commission currently addresses the competition concerns through the commitments (2.2).

2.1 The European Commission’s analysis of the transaction

On 20 February 2024, the European Commission approved, under conditions, the proposed Joint Venture between Orange and MásMóvil11. The latter are the second and fourth largest providers of retail mobile and fixed internet services in Spain. In total, there are four mobile network operators active in Spain (i.e., Telefónica, Vodafone, Orange, and MásMóvil) and several MVNOs, the largest of which is Digi Spain.

In its analysis, the Commission noted that the Joint Venture may decrease the number of network operators in Spain, which would result in the removal of a major competitive constraint and an innovative competitor in the Spanish retail markets for mobile telecommunications services, fixed internet services, and multiple-play bundles.

11. European Commission, press release of the decision of 20 February 2024, Orange/MásMóvil/JV (case M.10896).

The Commission considered that the transaction will result in the creation of largest telecommunications operator in Spain in terms of customer numbers, with a substantial increase in market share across all relevant retail sectors. Orange and MásMóvil are direct competitors in the Spanish retail market for mobile and fixed internet services. MásMóvil has been offering highly competitive deals and has experienced consistent growth over the years. Its main brands have attracted a significant number of customers away from Orange in Spain. As a result, the Commission considered that the Joint Venture would eliminate a close and significant competitor. Additionally, the transaction could potentially lead to significant price hikes for consumers in Spain, exceeding 10%.

The Commission considered that any potential benefits of the transaction, such as cost savings or the expansion of 5G or fiber-optic networks, would not outweigh the substantial anti-competitive effects of the transaction.

In these circumstances, the Commission concluded that the anticipated anti-competitive effects remain significant even when considering potential cost savings, especially in a market where competition has played a crucial role in driving investment and ensuring high-quality services.

2.2 The remedies proposed by Orange and MásMóvil

To meet the Commission’s concerns regarding competition in Spain in the retail supply of mobile telecommunications services, fixed internet access services and multiple-play bundles services, Orange and MásMóvil offered several commitments. These commitments include:

1. Spectrum Transfer Agreement: Digi Spain has concluded an agreement with MásMóvil to acquire spectrum licenses for the private use of certain blocks of frequencies from Xfera Móviles, S.A. (part of MasMovil Group in Spain). The divested mobile spectrum will allow Digi to establish its own mobile network and create a strong competitive force.

2. An optional national roaming agreement: Digi Spain and Orange Espagne, S.A.U. have concluded an optional agreement. This agreement grants Digi Spain the option to enter into a national roaming service agreement in the future. This agreement would allow Digi Spain to access all available technologies in the mobile network of Orange Espagne S.A.U. or its affiliates (including MásMóvil Ibercom S.A.U.) in Spain. This is particularly important as Digi’s future mobile network may not cover the entire territory of Spain, like MásMóvil’s network. The national roaming agreement is optional, allowing Digi to continue using its current wholesale provider (Telefónica) or choose another mobile network operator in Spain, such as the Joint Venture or Vodafone.

It should be noted that Digi has a substantial fixed broadband network in Spain, which it is actively expanding. Consequently, the commitments do not encompass any fixed broadband assets.

The European Commission, however, concluded that the commitments fully address the competition concerns and will maintain a competitive telecommunications market in Spain, ensuring both competitive prices and quality of service, as well as facilitating the deployment of 5G networks, ultimately benefiting consumers.

The judgment Commission v. CK Telecoms enabled the Court of Justice to clarify the standard of merger control in the oligopolistic markets for mobile telecommunications services and to provide guidance on how to assess the efficiencies of consolidation

May 11,

3. Clarification from the European Court of Justice in the face of differences in position within the European Commission

Putting the Orange-MásMóvil decision into perspective shows that decision-making practice tends towards clarification regarding the analysis of efficiencies in oligopolistic markets (3.1), but this gradual clarification of decision-making practice is contrasted by the differing positions of two European Commission directorates about the issue of consolidation (3.2).

3.1 Progressive clarification of the decision-making practice on efficiencies in oligopolistic telecoms markets

The Orange-MásMóvil decision should be read in the perspective of mergers in oligopolistic markets in the telecoms sector. In this respect, by judgment of 13 July 2023, the Court of Justice of European Union (the ‘Court’) set aside the judgment of the General Court challenging the European Commission’s prohibition of the proposed takeover of O2 by Hutchison12 and referred the case back to the General Court13

The judgment Commission v. CK Telecoms enabled the Court of Justice to clarify the standard of merger control in the oligopolistic markets for mobile telecommunications services and to provide guidance on how to assess the efficiencies of consolidation. The Court of Justice gives some important clarifications on the standard of proof the European Commission must meet when assessing a merger, the assessment of mergers below the dominance threshold, the concepts of ‘closeness of competition’ and ‘important competitive force’ and, finally, on the handling of efficiencies.

The Court pointed out that, while certain mergers may result in efficiency gains of their own, this possibility in no way implies that all mergers lead to such efficiency gains. In any case, it is up to the notifying parties to demonstrate such efficiencies, so that the European Commission can take them into account in its review14

13. Judgment of the Court of Justice of 13 July 2023, Commission / CK Telecoms UK Investments (C-376/20 P, ECLI:EU:C:2023:561).

14. Judgement of the Court of Justice, Commission / CK Telecoms UK Investments, para. 233-247 and 297-313.

12. On

2016, the European Commission has blocked the acquisition of Telefónica Europe by Hutchison 3G UK Investments, which became CK Telecoms UK Investments Ltd. In this decision, The European Commission had serious concerns that the takeover would have removed an important competitor leaving just two mobile network operators, Vodafone and BT’s mobile business ‘EE’, to challenge the combined entity.

In its decision on the merger O2/Hutchison, the European Commission had analysed the efficiency gains related to the consolidation of the networks. The Commission had carried out econometric tests to assess the likelihood of prices increasing after the transaction. The Commission was sceptical about the efficiency gains made possible by the consolidation of radio access networks. Regarding the timely materialisation of efficiency gains on the network, the Commission considers that major uncertainty remains as to the timing and scale of network integration and investments, which leads it to question the supposed efficiency gains.

In respect of the notifying party’s argument that economies of scale and fixed cost economies would facilitate the merged entity’s ability to make future investments and acquire more spectrum, the Commission considers that the efficiency gains brought about by fixed cost savings would not benefit consumers, even if they were verifiable and specific to the merger15

In its judgment, the General Court criticises the Commission for not including standard efficiency gains in its quantitative analysis16. Additionally, the General Court highlights evidence suggesting a positive correlation between market consolidation in the mobile telecommunications sector and both price increases and increased investments in networks by mobile operators. The General Court emphasises that the Commission failed to prove its hypothesis of network quality degradation, which is crucial to its second theory of harm, indicating a significant hindrance to effective competition17

The Court of Justice, however, confirmed the Commission’s reasoning.

Against this backdrop, one question needs to be addressed: while consolidation may seem detrimental to consumers in the short term, can we be sure that it will be the same in the long term?

One question needs to be addressed: while consolidation may seem detrimental to consumers in the short term, can we be sure that it will be the same in the long term?

The report from the Centre on Regulation in Europe (CERRE) regarding market consolidation in mobile communications emphasises that competition and regulatory authorities primarily focus on the pricing consequences of mergers. The CERRE is concerned that heightened concentration may lead to increased prices for end users. Notably, authorities seem to have given less consideration to the potential impact of such mergers on efficiencies and, more specifically, investments18

The report reveals that an escalation in market concentration in the mobile telecommunications market results in a genuine economic trade-off. While a merger is expected to drive up prices, the analysis indicates that investment per operator will also rise. For instance, based on a hypothetical data for a 4-to-3 symmetric merger, there would be a 16.3% increase in end-user bills compared to a scenario where no merger occurred. Simultaneously, capital expenditure at the operator level would experience a 19.3% increase19. The study concludes that:

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‘Ceteris paribus, a merger will have static price effects to the detriment of consumers, but also dynamic benefits for consumers as investments can enhance their demand for services. An open question that our study raises, but cannot answer due to data limitations, is an assessment of the impact of investments on consumer surplus […] Understanding where the extra investment money goes when a market gets more concentrated is an inescapable question to properly assess the consequences of mergers in mobile telecommunications markets. The missing link, which we hope will be further researched by operators, competition authorities and scholars alike, is the understanding of the consumer benefits that arise as a consequence of operators’ investments’20

3.2 Differences in positions within the European Commission

Finally, within the European Commission, the recent decisions of the Directorate-General for Competition (the ‘DG COMP’) seem to be at odds with the position of the Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (the ‘DG Internal Market’) – indicating what could be a difference in approach between the two directorates. Indeed, if DG COMP seems to assess the efficiency gains of consolidation very strictly, DG Internal Market seems to want to encourage the emergence of transnational champions among telecom operators21.

If DG COMP seems to assess the efficiency gains of consolidation very strictly, DG Internal Market seems to want to encourage the emergence of transnational champions among telecom operators

20. Centre on regulation in Europe (CERRE), Evaluating Market Consolidation in Mobile Communications, p. 45.

21. In several interviews given to the press over the course of 2023, the European Commissioner for the Internal Market, Thierry Breton, said he believed that a new telecoms industrial policy needs to be mapped out through a new Telecoms Act. This Telecoms Act could be based on three pillars. Firstly, it would promote research and scientific excellence in the field. Secondly, a legislative framework would establish a single market for communications infrastructures for 440 million consumers, encouraging investment and quality of service. Finally, future regulation would enable the emergence of pan-European players. To achieve this, the European Commissioner proposed to remove obstacles to cross-border consolidation.

More specifically, the European Commissioner for the Internal Market, Thierry Breton, considers that telecoms operators need scale and agility to adapt to the technology revolutions, but market fragmentation holds them back. In his opinion, there are too many regulatory barriers to a true Telecoms Single Market, on spectrum acquisition, consolidation, legacy networks, security, and so on. To achieve the Telecoms Single Market, he states that it is important to facilitate cross-border operations and the creation of true pan-European infrastructure operators, with the scale to reap the full potential of an EUwide telecoms market22

In addition, the European Commissioner considers that the issue of market consolidation should be addressed for operations in a Member State while preserving consumer benefits and innovation. This political will is also expressed in the Report on the state of the Digital Decade, which includes a strong call to Member States to complement private investment and this report underlines that the ‘[…] situation needs to be analysed also considering the different scale achieved by operators active in the EU compared with those in the US. While a few European operators are active across multiple Member States, none of these operators compare to the scale achieved by operators on the US market, where five operators offer fixed or mobile networks across the entire country’23

The difference in position within the European Commission regarding consolidation in the telecom sector has an impact on the overall approach and decision-making process. The contrasting views between DG COMP and DG Internal Market reflect a divergence in priorities and objectives. While DG COMP focuses on competition and preventing potential negative effects on consumers, DG Internal Market prioritises the creation of transnational champions and the development of a unified European telecom market. This disparity can lead to debates and challenges in reaching consensus and formulating cohesive policies on consolidation. It highlights the complexity of balancing competition concerns with the goal of fostering innovation and growth in the telecom sector.

In this respect, on 21 February 2024, the European Commission has published a white paper on the hurdles to EU’s infrastructure needs and plans to improve it through twelve scenarios24. The white paper aims to start a discussion on concrete proposals with stakeholders, Member States and like-minded partners on how to shape future EU policy action with a view to achieving a consensus. What is interesting in the white paper about our subject is that the European Commission writes that cross-border consolidation has never been a competition issue in the EU electronic communications markets due to their national dimension. However, the Commission underlines that the benefits of cross-border consolidation are currently limited by the existence of national regulatory frameworks and the absence of a true single market25

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22. Pierre Manière, ‘Bruxelles relance ses réflexions sur un marché unique des télécoms’ , La Tribune, 10 February 2023.

European Commission, Report on the state of the Digital Decade 2023, 27 September 2023, p. 12.

European Commission, white paper - How to master Europe’s digital infrastructure needs?, 21 February 2024.

European Commission, white paper - How to master Europe’s digital infrastructure needs?, p. 14.