Competition and investment in telecoms

Written on 9 Jan 2017

The European Commissioner for Competition, Margrethe Vestager, recognised in a speech on 28 November 2016 the fundamental importance of networks as “the backbone of economic development”, with modern services depending on a variety of different networks. She used the example of telecoms networks to highlight that competition is key to encouraging businesses to invest and making sure the networks meet the needs of consumers.

Competition encourages businesses to invest because they know that if they don’t invest in better services, their competitors will. But the role of competition in encouraging businesses to invest does not stop there, as the European Commission is also committed to filling the gaps in private investment. The new Electronic Communications Code will cut the costs of building networks, and state aid rules make it easier for national governments to support that investment. EU money has also been made available: the Juncker Investment Plan has already supported digital investments worth more than €3billion.

Mobile-mobile mergers

Ms. Vestager then turned to the Commission’s approach to mergers in the telecoms industry. In the context of mergers between mobile operators, she used the example of three mergers – in Denmark, the UK and Italy – to show that (in her view) it was hard to see how they would benefit consumers. In these examples, the newly merged company would have been the biggest in the country. In the UK and Italy, this meant losing an important competitor, while in Denmark and Italy, the mergers would have created leaders of a similar market size, so there were concerns they could easily coordinate prices. Despite competition concerns, though, the Commission may allow such mergers to proceed if the size of the company created would give the companies the resources it needed to invest or there are adequate remedies offered. Ms. Vestager considered the best remedy to be structural change, such as the creation of a new physical operator, as was required in the Italian case.

Fixed-mobile mergers

In contrast, mergers between fixed and mobile companies can help consumers if it gives them access to a better deal. This may well happen where the merger means that companies can offer a quad-play offer (i.e. landline, internet, TV and mobile all being supplied by the same company). In some recent examples, the Commission was satisfied that there would be no issue of the companies using quad-play offers to squeeze standalone companies out of the market. The only concern could be in the areas in which the companies already competed.  However, the companies in question offered undertakings to ensure that competition would not be restricted, for example setting up a new virtual operator and selling off fixed businesses.

The messages in this speech are relevant not only to telecoms markets, but also to other markets, such as the energy sector. The Commission has its focus firmly on making sure competition thrives, to deliver choice, innovative services and affordable prices to consumers while encouraging investment in better networks.