Analysis: How many mobile operators is enough to ensure competition?
The mobile telecoms environments in the UK and France are markedly similar on paper, right down to the number of providers and their respective numbers of customers.
Both have similar populations and four players. Both are also set to lose one of their players through mergers and acquisitions.
As 2016 looks set to be the year of merger mania, regulators in Brussels will be trying to decide how many operators per country is enough to ensure competition.
Over the winter period, further details have been emerging about the potential merger of Orange and Bouygues Telecom in France. It now looks as though Orange will buy Bouygues’s telecoms arm for €10 billion.
Meanwhile, in the UK, Three owner Hutchinson Whampoa is set to acquire Telefonica-owned operator O2.
What are the dilemmas?
In France, the combined entity will control about half of the mobile market while in the UK O2 and Three will have about 40 percent of subscribers. These differing figures are largely driven by the levels of concentration currently present in the markets – France has two big players and two small players, the UK has three big players and one small player.
Italy is another country facing consolidation, with a slightly smaller population than France and the UK but roughly the same concentration of subscribers – three big and one small. It looks like a merger between the third and fourth largest operators Wind and 3 might be on the cards there in 2016.
What guidance can previous activity in European telecoms give to these countries? Germany and Ireland both went from four to three players in 2014.
However, the example that will weigh most heavily on the minds of regulators currently is the Austrian merger deal cleared in 2012, which also cut the number of operators from four to three.
"The market often cited is Austria," says Kester Mann, Principal Analyst at CCS Insight. "There have been increased prices in operators towards the lower end of the market. This is one of the reasons that regulators are concerned."
According to the Vienna Chamber of Labour, the cost for average phone and SMS users rose around 29 percent between September 2013 and December 2014, with the cost for mobile data users increasing 78 percent in the same period.
What are regulators planning?
Key to the future of these deals will be Margrethe Vestager, the European Commission’s Competition Commissioner since 2014, who replaced Joaquín Almunia in the role.
Vestager has already exercised a tough hand over a proposed merger of TeliaSonera and Telenor in her home country of Denmark.
She had imposed such onerous conditions on the deal in order to approve it that the two countries chose not to complete it.
While the Competition and Markets Authority, the UK’s own watchdog, had requested to oversee the deal, cross-border deals of this size are examined by Brussels regulators unless at least two-thirds of the businesses of both parties are conducted in the state in question.
The last time the UK saw serious consolidation in the mobile sphere was the merger of T-Mobile and Orange to create EE, bringing the number of operators down from five to four.
"5 operators was a lot for the UK. There were challenges with having that number," says Mann.
It is not just the number of operators that impacts competition in the sector, however, as Mann explains.
"MVNOs help keep the UK competitive," he says. "France has an important MVNO scene but I am not sure it is as influential as the UK.
"A large element is the impact of Free, which show up the French market with lower prices. There is lots of pressure on these operators to try and strengthen their positions. Free has been more important for keeping prices down."
What will the UK look like?
Assuming that the deal is approved by the Commission, the UK landscape will be set for some changes.
BT’s acquisition of EE, which has not proved as controversial as the Three-O2 merger, will create an overwhelming leader in the multi-play market.
With developments such as Vodafone offering broadband deals, and the expected launch of Sky Mobile this year, the UK may see more of a multi-play presence, beginning to look more similar to its European counterparts than it does now.
"France is more advanced in terms of multiplay – the owners of the mobile networks can all offer fixed services and content," says Kester Mann. "If Orange bought Bouygues it would but its telecoms assets."
"However, the UK has made moves in that direction.
"Three and O2 looked increasingly vulnerable to these trends, so this is a strategy that plays to both companies’ advantages."