An Evaluation of the Hutchison/Orange Merger in Austria

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An Evaluation of the Hutchison/Orange Merger in Austria A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Pedrós, Xavier; Bahia, Kalvin; Castells, Pau; Abate, Serafino Conference Paper Assessing the impact of mobile consolidation on innovation and quality: An evaluation of the Hutchison/Orange merger in Austria 28th European Regional Conference of the International Telecommunications Society (ITS): "Competition and Regulation in the Information Age", Passau, Germany, 30th July - 2nd August, 2017 Provided in Cooperation with: International Telecommunications Society (ITS) Suggested Citation: Pedrós, Xavier; Bahia, Kalvin; Castells, Pau; Abate, Serafino (2017) : Assessing the impact of mobile consolidation on innovation and quality: An evaluation of the Hutchison/Orange merger in Austria, 28th European Regional Conference of the International Telecommunications Society (ITS): "Competition and Regulation in the Information Age", Passau, Germany, 30th July - 2nd August, 2017, International Telecommunications Society (ITS), Calgary This Version is available at: http://hdl.handle.net/10419/169453 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Assessing the impact of mobile consolidation on innovation and quality An evaluation of the Hutchison/Orange merger in Austria Executive summary ............................................................................................................... 3 1. Introduction ....................................................................................................................... 5 2. Mobile mergers, quality and innovation ............................................................................. 7 2.1 Quality, innovation and consumer welfare ................................................................... 7 2.2 The Hutchison/Orange merger .................................................................................... 9 2.3 The potential effect of the Austrian merger on quality and innovation ........................ 10 3. Our approach .................................................................................................................. 14 3.1 Measuring innovation and quality .............................................................................. 14 3.2 Pre and post-merger trends in innovation and quality ................................................ 16 3.3 Methodology .............................................................................................................. 17 4. Results ............................................................................................................................ 21 4.1 4G coverage .............................................................................................................. 21 4.2 4G network quality ..................................................................................................... 23 4.3 3G network quality ..................................................................................................... 26 5. Conclusions .................................................................................................................... 29 5.1 The effect of the Hutchison/Orange merger ............................................................... 29 5.2 Implications for competition policy and merger assessment ...................................... 30 References ......................................................................................................................... 32 Acknowledgements ............................................................................................................. 34 Authors ............................................................................................................................... 34 Annex ................................................................................................................................. 35 A1. Methodology ................................................................................................................. 35 A1.1 General counterfactual considerations .................................................................... 35 A1.2 Difference-In-Difference .......................................................................................... 35 A1.2.1 Base model ....................................................................................................... 35 A1.2.2 Trend model ..................................................................................................... 38 A1.2.3 Robustness checks ........................................................................................... 39 A1.3 Synthetic control ...................................................................................................... 41 A1.3.1 Framework ........................................................................................................ 41 A1.3.2 Robustness checks ........................................................................................... 42 A2. Data .............................................................................................................................. 44 A2.1. Data sources .......................................................................................................... 44 A2.2 List of operators included in study ........................................................................... 45 1 A3. Results ......................................................................................................................... 47 A3.1 4G coverage ........................................................................................................... 47 A.3.1.1 Merger effects on Hutchison ............................................................................ 47 A.3.1.2 Market-wide effects .......................................................................................... 50 A3.2 4G network quality .................................................................................................. 54 A.3.2.1 Merger effects on Hutchison ............................................................................ 54 A.3.2.2 Market-wide merger effects.............................................................................. 55 A3.3 3G Network quality .................................................................................................. 57 A.3.3.1 Merger effects on Hutchison ............................................................................ 57 A.3.3.2 Market-wide merger effects.............................................................................. 60 A4. Annex references.......................................................................................................... 64 2 Executive summary This study analyses the impact of the 2012 merger between two mobile operators in Austria – Hutchison 3G Austria and Orange – on 4G network coverage, download speeds and upload speeds. It is the first of its kind to measure the impact of a mobile merger on network quality and innovation outcomes as experienced by the consumer. The merger between Hutchison and Orange in Austria involved the combination of the two smallest operators in a four-player market, which included rivals A1 Telekom and T-Mobile. In its assessment, the European Commission (EC) argued that Hutchison and Orange were close competitors and Hutchison was regarded as an important competitive constraint. For this reason, the EC concluded that the merger would reduce competition and increase prices, to the detriment of consumers. At the time of the assessment, Hutchison claimed that the merger would deliver a number of efficiencies, including improved 4G coverage and improved quality of service. These did not pass the burden of proof, in particular with regards to merger-specificity and benefits to consumers. Eventually the merger was approved after Hutchison agreed to implement a set of remedies. We find that the merger had a significant positive impact for Austrian consumers. Hutchison was able to accelerate population coverage of its 4G network by 20–30 percentage points as a result of the merger, with this taking effect after two years. Hutchison’s 4G network quality also increased significantly, with 4G download and upload speeds increasing by 7 Mbps and 3Mbps respectively two years after the merger. We also find positive effects on the quality of mobile networks in the Austrian market as a whole, with 4G download and upload speeds increasing
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