Competition issues in the telecom sector

Law & Economics Workshop organized by Concurrences in partnership with Magenta and Oxera.

Current events in the telecoms sector relate to three themes: consolidation, the issue of net neutrality and the role of the regulator in driving competition on the mobile telephony market, particularly with the allocation of frequencies in the so-called 700 MHz band.

Consolidation in the telecom sector

Sylvain Justier

While structural remedies remain central to treating horizontal effects, they are increasingly accompanied or even preceded by behavioural remedies.

The consolidation movement in the telecoms sector, which affects the whole of Europe, including France, is still ongoing. Three types of operations are emerging: concentrations between mobile operators, concentrations between cable operators and concentrations between mobile and fixed operators as part of the convergence movement between these different services. A reading of the decisions handed down by the competition authorities shows that the competitive analysis of "incentives" is becoming more refined. This is linked to the fact that most of the transactions in the sector do not result in the creation of a dominant player but may lead to the elimination of an important source of competition due to the disappearance of a player that was driving the market. In this respect, an operator’s market share does not necessarily reflect its effect on the degree of competition in the market. The analysis of the horizontal effects of such a transaction therefore requires to delve into the dynamics of the market through different tests. The main one - the UPP test - helps to determine the extent to which the merger would allow the acquirer to profitably increase prices, by measuring the rate of customer switching to the target. Beyond this test, the competition authorities also analyse the size of the customer base to assess the competitive incentives of the operators. Since the sector is characterised by high fixed costs, operators with the smallest subscriber bases are generally the most "aggressive" in order to quickly maximise the number of users of their networks. At the level of vertical/conglomerate effects, the recent transactions also show a careful analysis of foreclosure strategies that could be anticipated without remedies (in particular by measuring the incentive for the acquirer to sacrifice its wholesale revenues in consideration of the gains that a foreclosure strategy could bring in the downstream markets).

Photos © Tony Trichanh.

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