EU commish: We smacked down O2/Three but we didn't take it 'lightly' EU competition commish Margaret Vestager reckons the decision to smack down the proposed £10.5bn merger between O2 and Three this week was one it did "not take lightly". The decision to block the deal this week came as little surprise to most. Along with Ofcom, the EU has been vocal about its concerns over the deal - mainly …
from http://ec.europa.eu/competition/mergers/procedures_en.html
The Commission in principle only examines larger mergers with an EU dimension, meaning that the merging firms reach certain turnover thresholds. There are two alternative ways to reach turnover thresholds for EU dimension.
The first alternative requires:
(i) a combined worldwide turnover of all the merging firms over €5 000 million, and
(ii) an EU-wide turnover for each of at least two of the firms over €250 million.
The second alternative requires:
(i) a worldwide turnover of all the merging firms over €2 500 million, and
(ii) a combined turnover of all the merging firms over € 100 million in each of at least three Member States,
(iii) a turnover of over €25 million for each of at least two of the firms in each of the three Member States included under ii, and
(iv) EU-wide turnover of each of at least two firms of more than €100 million.
If they were concerned with the reduction in the number of mobile operators, why didn't they block the merger of T-Mobile and Orange a few years ago?
Exactly the same scenario.
The only difference (from my recollection) was that TM and Orange were French and German owned, whereas O2 and Three are Spanish and Hong Kong owned...
There were 5 providers, and the merger of those two made it 4.
As there are now 4, this latest merger (if it had been allowed) would have left only 3, and we'd have lost the (arguably) most price competitive one of the 4. The commission probably also saw the lessons to be learned from other EU countries with only 3 providers (higher costs, even worse service).
It can be hard to judge, as each provider has their own deals that can work out best if you fall into the right profile.
But I would say that in general Three is the most price competitive, and as they are the ones looking to purchase O2, we aren't "losing" them. Whether they remained as competitive might be another matter though.
There were a greater number of mobile network operators in the market.
Is four some magic number that protects consumers then?
There is a lack of competition in the mobile market, but that's because you have an oligopoly of (depending on your view) three to five vertically integrated incumbents. Their retail offer is not seeking to rock the boat and deliver better deals for customers. Of course, what about MVNOs? Pity that three of the biggest MVNOs are wholly owned captives of the vertically integrated incumbents and if nothing's changed one of the other largest MVNOs is half owned by an incumbent.
You could of course set up your own MVNO. But you'll have to go cap in hand to one of the MNO, hope they'll cut you a fair deal (Ha! Good luck with that!), and that they then won't use their captive MVNO to rip the rug from under you by predatory pricing - often offered cheap only through third party distributors, so that it crops up on Uswitch, but the incumbent can say "not us, guvn'r".
If that's what you call competition, you're welcome to it.
"Is four some magic number that protects consumers then?"
Elsewhere in the EU (and less relevantly, globally) there's been a significant reduction in competitiveness when the number of mobile network operators drops below four.
The standard test used is GUPPI - Gross Upward Pricing Pressure Index.
Elsewhere in the EU (and less relevantly, globally) there's been a significant reduction in competitiveness when the number of mobile network operators drops below four.
Which is rather simplistic view. One large operator with 3 considerably smaller operators doesn't necessarily mean better competition than 2 large operators.
"Is four some magic number that protects consumers then?"
Magic? No. Likely sweet spot between each MNO having high enough revenues to make adequate investment in the business without having dominant market+pricing power? Probably, Yes.
As others say above - markets with fewer than 4 players have higher prices than those with four or more.
Remember that building a Mobile Network is exceptionally capital intensive. The UK has a TAM of ~60m spread over a relatively small land mass which isn't going to support 27 separate MNOs! But also it is big enough to support 4.
Previous experience shows the UK can support 4 MNOs but seems to struggle with 5. When DCS1800 licenses were awarded (via the Beauty Contest method) in the early 1990s Mercury was awarded a license by default. The other two licenses ended up merging before launch, returning one license+spectrum to HMG and by launch became Orange. Three was a contrived effort to create a fifth challenger network when 3G licenses were awarded, realising the four incumbents wouldn't risk having no 3G spectrum but five again became four when TM and Orange were allowed to merge. I suspect if Three and O2 had tried to merge before TM and Orange tried it they may have got away with it (notwithstanding the stakes in MBNL and Cornerstone problem) and prevented TM and Orange from doing so.
So to return to your question: In the UK at least, "Four (sic) is the magic number"
The evidence appears to be, yes it is.
Past Performance is Not Necessarily Indicative of Future Results...
Remember each generation of mobile network has been more expensive than the previous to develop and deploy and so far 5G shows no signs of deviating from that trend...
I suggest the real problem going forward isn't so much whether we have 3 or 4 MNO's but the number of operators/shareholders/investors in the two network consortiums and hence the funding pool each can draw upon to upgrade their networks...
@Ledswinger
"There were a greater number of mobile network operators in the market."
It is just a statement of fact, just because you start to read things in to it, makes no difference to a fact. I did not attach an opinion as to whether there was greater or less competition at that time. AC called out company owership as the differentiator, I just added the there were more players.
You come across a little confused, arguing that there isn't enough competition, as if some how, reducing the number of networks will aid competition, the normal answer would be to increase the number and split big players so a size advantage was negated.
I'd far rather have seen the BT/EE deal blocked than O2/Three, or have BT forced to dump OpenReach before approving the go-ahead. Surely BT/EE is a much bigger threat. Mind you, if 3 had got their arse in gear and bought up O2 before the BT/EE deal had gone down, it might have been BT crying about it.
(I was also kinda hoping for a 2G backup that actually had data included, unlike the current Orange-based 2G backup. So much for dumping the old Tesco Mobile backup SIM... *mutters*)
Mind you, if 3 had got their arse in gear and bought up O2 before the BT/EE deal had gone down, it might have been BT crying about it.
Remember BT announced its ambitions to dominate the mobile market with its takeover of EE in December 2014. Hutchison Whampoa announced its takeover of O2-UK a little over three months later in March 2015. For much of the time since then we've been waiting on the regulators...
I'm not convinced that Hutchison Whampoa were particularly slow, unless you mean they should of gone for the larger O2-UK deal before they went for the O2-IRL deal, which because of EU involvement took longer than expected.
Before the merger, BT had a very minimal presence in the mobile market, and Orange was not that big in the fixed line market. They used to be the largest ISP back in the dial-up days when they were known as Freeserve, but they weren't so successful in the migration to broadband.
So, after the merger, does it reduce my choice of fixed line providers? Not really.
Does it reduce my choice of mobile providers? No, because nobody really seriously considered BT as an option there.
All good points, only that part of Ofcom's remit is to look forward...
With the BT/EE deal, BT have become the first true quad-play network operator in the UK market. Yes, Sky, Virgin, TalkTalk may have quad-play offerings before BT, but all of these offerings relied on VNO arrangements.
So Ofcom in their recent decisions and lobbying of the EU, have confirmed that all their words and posturing about BT is pure bluster as they would rather BT dominated the UK telco market in the coming decades... Because lets be clear there is no operator (including Virgin) who are anywhere near BT in their ownership of the UK telco sector and hence really challenge BT.
I was hoping this would go ahead because I like Three's attitude, but I also like having phone signal in places like my house and office, which O2 seem to do better on because I'm a yokel. I need to move away from EE now that they are a BT branch, but this makes that choice harder as it means it's samesame products from O2 or Vodaphone basically.
I also have Three and wanted this to go through for the same reasons, however I live and work in London... it gets annoying when you have to go outside the pub in order to get phone signal, and its tedious as hell not having any signal in the office.
The whole "no other choices" argument is bollocks anyway, there are no shortage of MVNOs offering wildly different pricing to their parent MNO, eg Lebara contracts do not compare to Vodafone, nor does GiffGaff to O2.
"We didn't take that decision lightly." I might just have believed that - had they not started bleating on about how they didn't like the idea and would block it, months before actually reaching a decision saying they would block it. Or put another way - they had long made up their mind about it before they ever bothered to actually look into it.
But these dumb decisions are not helping.
Three and o2 merger would have been good news for three and o2 customers with better coverage to challenge the might of EE/BT
Google got where it is by offering a great product . You don't penalise companies that are too good at what they do, just to give the lame horses like Microsoft a chance.. Microsoft need to man up or give up.
quote:
She said: "For many years, British mobile customers who felt they were getting a raw deal from the bigger players have been able to “cross the street” to Three. Its prices have been much lower. And on a number of occasions, it has kept them that way even when its rivals tried to raise prices.
"So taking Three out of the picture would have seriously hurt consumers' freedom to choose."
- end quote
Three were trying to acquire O2, not the other way round - it might change the market dynamics, but it is NOT taking Three "out of the picture".
In fact, many Three customers wanted the deal to go through. If Three's prices have always been much lower, and UK customers can "always cross the street", then why are they not already the largest network in the UK? Maybe it's because - and I say this as a generally happy Three customer - they don't have the best coverage or indoor reception. It's an option that simply doesn't exist for many UK customers, and many of the existing customers might actually be prepared to pay a slightly higher price for a more comprehensive service.
But, funnily enough, all these regulators only listen to the industry, and not survey the customers that will be affected.
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