The Shifting Sands of EU Merger Control - Un, Deux, Trois, Piano!*
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Latest developments in Anti-Cartel Enforcement SYMPOSIUM : MOBILE MERGERS in the European Union (June 2016 - June 2017) The shifting sands of EU merger control - un, deux, trois, piano!* Mark Powell Katarzyna Czapracka CLPDPartner, Local Partner, White & Case LLP, Brussels White & Case LLP, Brussels There’s a popular children’s game where one player By comparison, the four largest operators in the US (the Curator) stands with her or his back to the jointly control approximately 98% of the market,1 other players, who stand several metres behind. and China only has three operators. The Curator then turns around quickly with the goal of seeing the others move towards her or him In the last ten years, a number of EU countries (or a wall depending on the game’s variation), have seen transactions bringing the number of thereby excluding them from the game. However, mobile network operators down from four to frequently, each time she or he looks around, the three. The European Commission (“Commission”) others have taken a step forward towards their has reviewed seven such transactions in the last goal without being detected; and so it is with the ten years. European operators have long argued Commission’s approach to merger control in the that consolidation is necessary to justify the mobile telecoms sector. Each time the telecoms heavy investments required for the development executives turn around, the European Commission and upkeep of mobile networks. They reason has taken yet another step forward and they do that increased investments will not only increase not see the Commission moving. Despite the risks the quality of service, but will also drive prices of the European Commission showing the red stop down.2 Despite the fact that the parties have been light (the Swedish variation), which effectively submitting increasingly extensive evidence to back occurred in the UK and Denmark recently, the up their efficiency claims, the Commission has game is still being played. This article tracks the continued to systematically dismiss them, raising European Commission’s steps forward over the the standard of proof placed on the parties in past decade and tries to catch the Commission each case it has reviewed. Commissioner Vestager moving. herself stressed that, in her view, competition (rather than market consolidation) drives the The background to this trend is that, as the profits investment and there are no guarantees that of mobile network operators across the EU come under attack, in part due to the EU’s policies to * Here, the authors are showing their Belgian bias. French readers create a single EU market for telecommunication will be horrified, as there, the game is known as “un, deux, trois, soleil”; in Spanish, perhaps more relevant for these purposes, it is services, and in part due to the growth in OTT “un, dos, tres, toca la pared”; in Italian, 1-2-3 stars; in Morocco, 1-2-3 services, the industry is subject to pressure to skeletons; in Algeria, 1-2-3 statues, which is something they have in common with the British, and, somewhat bizarrely, in Portugual, consolidate. Though a few larger operators are 1-2-3 little Chinese monkeys. In German, it is known as “Och am present in several EU Member States, the markets Berg” and for the Swedes, it is “1-2-3 –rött lijt” (red light) are still divided along national lines, typically with 1 See Federal Communications Commission, 20th Wireless Competi- tion Report, available at: https://apps.fcc.gov/edocs_public/attach- 3-4 network operators active in each Member match/FCC-17-126A1.pdf. State. The European mobile industry is also still 2 See, e.g., Supersonic, European telecoms mergers will boost capex, driving prices lower and speeds higher, available at: https://www. relatively fragmented, with the four biggest orange.com/fr/content/download/33263/1086075/version/2/file/ operators serving around 60% of EU subscribers. Supersonic+13.04.15.pdf. COMPETITION LAW & POLICY DEBATE | VOLUME 3 | ISSUE 4 | NOVEMBER 2017 41 SYMPOSIUM : MOBILE MERGERS allowing consolidation will result in a higher different challenges before the General Court, level of investments.3 While the Commission has a development that is likely of relevance to the been more open to so-called convergent, fixed- intensity of the Commission’s scrutiny in the more to-mobile mergers,4 it has become increasingly recent mobile mergers. sceptical of in-country consolidation of mobile operators and taken several strides forward. Under Commissioner Vestager, four-to-three mobile mergers have faced even greater regulatory It seems like ancient history now, but it was only hurdles. So far the Commission has only approved a decade ago that the first four-to-three mobile one four-to-three mobile merger, a joint venture merger, an acquisition of Orange by T-Mobile in between two Italian operators, but subject to the Netherlands in 2007, was unconditionally the commitment to divest assets (spectrum and approved by the Commission. The Commission network assets) so as to allow the entry of a new decision in that case is 18 pages long and focusses MNO. In other words, this is really a four-to- on the impact of the transaction on the mobile four merger. Prior to the adoption of the Italian retail market. decision, the Commission refused to clear two four-to-three mobile mergers in Denmark and Under Commissioner Almunia, the Commission the UK, even though the parties offered remedies approved three four-to-three telecommunications going beyond those offered in the cases cleared deals in Austria, Ireland and Germany. Each of under Commissioner Almunia. In yet another case the three transactions had been very closely involving a merger of a Belgian fixed operator scrutinized. In each case, the review process with significant mobile operations (MVNO) with involved a detailed and lengthy “Phase II” an MNO, the Commission required significant investigation, during which the Commission remedies to address the concerns created by the amassed extensive evidence to help it assess proposed transaction in the mobile markets. Thus, the impact of the transaction on the market. In under Commissioner Vestager, mobile mergers each case, the parties offered to divest assets and have been scrutinized even more closely than services that would allow a mobile virtual network under Commissioner Almunia. The UK decision is operator (MVNO), i.e., a company operating on the 685 pages long; the Italian decision is 428 pages retail market that does not have its own mobile long. Both decisions include dozens of pages network, to enter the market. But the remedy analyzing the parties’ internal documents and packages submitted in the Irish and German cases several annexes that contain the Commission’s went further than the remedies submitted in the econometric analysis of the merger’s impact on the Austrian case. In the Irish and the German cases, market. the Commission cleared the transactions only after the parties committed to offering up to 30% of This note traces the changes in the Commission’s their network capacity to MVNOs on preferential approach to four-to-three mobile mergers and terms approved by the Commission. In both cases, analyzes how the evidence gathered using these the Commission insisted that the merging parties new investigative tools appears to have swayed the find an “upfront buyer” for the remedy, i.e. sign outcomes of the analyzed cases. an agreement with a new MVNO entrant prior to closing the deal. The German decision and its 1. The changing anatomy of the EU implementation is currently the subject of five merger investigation The Commission has traditionally relied on the 3 See Commissioner Vestager, Competition in telecom markets, notifying parties to gather the information it needs 42nd Annual Conference on International Antitrust Law and Policy Fordham University, 2 October 2015. to assess transactions under the merger control 4 Convergent mergers bring together a mobile player with a fixed rules. Notifying parties fill in a lengthy form network operator. The rationale behind these mergers is the setting out the considerations that are relevant complementarity of the merging parties' assets. The Commission has cleared a number of convergent mergers in recent years, to the assessment of the case, including details including Orange’s acquisition of Jazztel in Spain in 2015, Telenet’s on the transaction, their views on the relevant acquisition of BASE in Belgium in 2016, and the creation of a joint venture between Vodafone and Ziggo in the Netherlands in 2016. product and geographic market definitions and However, some of these cases were cleared subject to divestments, the competitively significant links between them. which the Commission required in order to address the horizontal They submit it first as a draft and then respond to overlaps between the parties. 42 COMPETITION LAW & POLICY DEBATE | VOLUME 3 | ISSUE 4 | NOVEMBER 2017 SYMPOSIUM : MOBILE MERGERS The shifting sands of EU merger control - un, deux, trois, piano! various questions the Commission may have in the As a result of changes to the Implementing pre-notification consultations. In more complex Regulation7 in 2013,8 notifying parties are cases, this questioning often lasts several months, bound to submit a large number of internal and at the end of this process the parties submit documents together with the filing. In addition, a filing form that may be several hundred pages it is increasingly common for the Commission long and, as we have seen recently, face significant to issue, following the official submission of the penalties if there is the slightest omission or filing, broader requests for internal documents, inaccuracy.5 The questioning continues after including email correspondence relating to topics the official filing and notifying parties are often pertinent to the assessment of the case.