This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
This edition of the Olswang Competition Telecoms Bulletin provides an update on recent merger control activity in the telecoms sector, an overview of the European Commission’s recent activity in relation to the Digital Single Market as well as other regulatory news affecting the EU and UK telecoms markets.
The second half of 2015 has been characterised by a series of in-depth, Phase II merger investigations in the telecoms sector at both EU and UK level. There has also been a flurry of activity from the European Commission with respect to its Digital Single Market strategy.
Merger News
CMA provisionally clears BT acquisition of EE
On 28 October 2015, the UK competition authority, the Competition and Markets Authority (“CMA”) provisionally cleared BT’s acquisition of EE, finding that the transaction does not give rise to a substantial lessening of competition in any market in the UK. As previously reported, the transaction was fast-tracked to an in-depth, Phase II investigation at the request of BT in June. In a press release detailing the provisional clearance, the CMA notes that BT and EE operate in “largely separate areas” and that there is “limited overlap between the parties”, with BT primarily providing fixed communications services and EE’s business focused on mobile communications services. A summary of the provisional findings have been published on the CMA’s website, although the final report is not expected until 18 January 2016 – the new extended deadline for publication.
European Commission opens in-depth investigation of Hutchison Whampoa’s acquisition of Telefónica UK
In our last update we reported that Hutchison Whampoa, parent company of UK mobile network operator (“MNO”) Three, had agreed to acquire Telefónica’s UK brand, O2. The transaction was formally notified to the European Commission on 11 September 2015, and on 30 October 2015 the Commission opened an in-depth, Phase II investigation into the transaction. The Commission is concerned that the transaction could result in “higher prices, less choice and reduced innovation for customers of mobile telecommunication services in the UK”. In particular, the Commission is concerned that the transaction would remove an important competitive force in the market, reducing the number of MNOs in the market from 4-to-3 and creating the largest MNO on the UK market. This in turn could reduce the number of MNOs willing to host mobile virtual network operators (“MVNO”), which in turn could weaken the negotiating power of MVNOs, as well as raising prices.
The original deadline for completion of the Phase II review was 16 March 2015, however following a brief suspension of the investigation reportedly attributed to a missed deadline for a request for information, the deadline for completion of the investigation is now 22 April 2015.
UK referral request
Following notification of the transaction to the Commission, the CMA submitted a request to the Commission to refer assessment of the transaction to it, on the basis that not only will the transaction be likely to affect UK customers exclusively, but the CMA considers itself well-placed to review the transaction given its recent experience on the BT/EE acquisition. The Commission has a history of retaining jurisdiction over such transactions in the telecoms sector, rejecting five referral requests in three years, and the story was no different for the Hutchison/Telefónica transaction. On 4 December 2015 the Commission announced that it had rejected the CMA’s referral request stating that it considered that it was “better placed to ensure consistency in the application of merger control rules” across the EEA, relying on its “extensive experience” in assessing cases in this sector.
Commission launches Phase II investigation into Liberty Global’s acquisition of BASE Belgium
The European Commission announced on 5 October 2015 that it has commenced an in-depth, Phase II investigation into the purchase of BASE Belgium by Liberty Global. The transaction was announced in April 2015 and formally notified to the Commission on 17 August 2015. The deal would see BASE, the third largest mobile network operator in Belgium, combine with Telenet’s cable service (the largest MVNO in Belgium) which provides television, broadband and phone services in Brussels and Flanders. The Commission is concerned that the merger could lead to “higher prices, less choice and less innovative services for customers in the Belgian telecommunications market”. In particular, the Commission is concerned that the transaction could reduce competition in the retail mobile telephony market in Belgium, reduce incentives for BASE to offer virtual operators access to its mobile network, and might result in an increased market power with respect to fixed lines, resulting in the merger parties’ ability to exclude competitors.
In order to conclude the investigation, on 27 October 2015 Liberty Global submitted remedies to the Commission designed to address the competition concerns identified. It is reported that the remedies include the offer to divest Belgian brands Mobile Vikings and Jim Mobile, with a buyer already identified. This remedy offer follows an unsuccessful offer during the Phase I investigation, at which point Liberty Global offered to divest part of BASE’s mobile customer base in Belgium and to continue to offer access to mobile operators who currently use the BASE network. Liberty Global will be hopeful that this second offer will be more suitable in addressing the identified competition concerns, and will allow the Commission to clear the transaction, subject to the agreed divestments. The deadline for completion of the Commission’s review is 17 March 2016.
Telenor and TeliaSonera joint venture collapses
A proposed deal between the telecoms operators, Telenor and TeliaSonera, to form a joint venture in Denmark (for more details see our previous update) was abandoned on 11 September 2015. The announcement came amid the European Commission’s concerns about the merger’s effect on competition in the country and as a result of Telenor’s and TeliaSonera’s failure to reach an agreement with the Commission with respect to remedies suitable to address the competition concerns identified.
The four-to-three question
By merging the two companies’ Danish businesses, the number of mobile telecoms operators in the country would be reduced from four-to-three – historically this has been a problematic reduction for the Commission. Under former Competition Commissioner Joaquín Almunia, the Commission was prepared to allow mergers that saw the reduction of mobile operators from four-to-three subject to specified terms: the so-called “three plus remedies” approach. Therefore, in Austria, Germany and Ireland, such mergers were permitted so long as, for example, spectrum was sold to, or reserved for, a new mobile network operator, or greater access to the wholesale network was permitted for mobile virtual network operators.
However, current Competition Commissioner Vestager appears to take a different approach. Speaking at Fordham University in October, Vestager emphasised the need for each merger to be approached on a case-by-case basis, stating that there is “no magic number” in relation to the number of network operators in each Member State. However, Vestager also underlined that research has shown that a reduction from four-to-three can lead to higher prices for consumers and not more investment per subscriber, a factor which has to be taken into account when considering submissions which claim that consolidation leads to investment. Finally, on the topic of remedies Vestager stated a preference for structural remedies in horizontal mergers because they are immediately effective, identifying other types of remedies as more risky and difficult to implement effectively. Only time will tell whether Vestager’s differing stance to Almunia on the four-to-three question will result in a change of outcome for such transactions in the telecoms sector, with the first test likely to be the Hutchison/Telefónica transaction.
Hutchison Whampoa and VimpleCom agree to Italian joint venture
Watching the collapse of the Telenor/TeliaSonera JV closely will be Hutchison Whampoa and VimpleCom who have agreed to create a 50-50 joint venture, combining their Italian mobile operations. The effect of their proposed transaction will be to reduce the number of wireless network operators in Italy from four-to-three. It has been suggested, however, that Hutchison and VimpleCom need not be quite so concerned in relation to their deal in Italy, which is much smaller in scale that the ill-fated Telenor/TeliaSonera JV. The proposed joint venture would create an operator roughly the same size as Italy’s leading provider, Telecom Italia, while Vodafone also maintains a strong presence in Italy.
The transaction is yet to be notified to the European Commission, but it is understood that the parties hope to complete the joint venture in the summer of 2016.
Digital Single Market – recent developments
Consultation on information and communications technology
As part of its Digital Single Market (“DSM”) initiative, discussed in an earlier bulletin, on 23 September 2015 the European Commission launched a public consultation on information and communications technology within the Digital Single Market. The Commission hopes that by consulting with parties as diverse as researchers, companies, organisations that develop and maintain standards, and the public, a clear set of priorities will emerge in establishing a framework of common standards across Europe.
This consultation is a vital process in the establishment of the DSM, which the Commission envisages as a borderless, technologically advanced, consumer-friendly market which will foster innovation and drive competition. Its scope is broad: it will reach over 500 million people and the Commission is consulting on a wide range of areas from 5G, to Cloud Computing, Cybersecurity and the Internet of Things. The Consultation closed on 16 December and will act as a foundation on which to build further standards. An ICT Priority Standards Plan is planned to be published by the first half of 2016.
Legislative proposals regulating online activities
With a view to further the goals of the DSM the Commission has published proposals for new legislation broadly aimed at improving access to online content and removing obstacles to online shopping:
- Proposal for a directive on certain aspects concerning contracts for the supply of digital content; and
The Commission has also proposed a new Regulation on the portability of online content services. The Regulation seeks to tackle an issue arising as a result of the increasing popularity of online content services such as Netflix, Amazon Price and Apple TV – limitations on subscriber’s access to content in EU territories outside their home Member State.
The proposed legislation will now be reviewed by the European Parliament and Council before it can be passed into law – a procedure which will no doubt lead to detailed debate on the precise content of the proposed legislation and possibly even amendments to the content.
Net neutrality and roaming Regulation
In our last update we reported that the Commission had reached an agreement with the European Parliament and the Council to introduce strong net neutrality rules and to end mobile roaming charges. On 27 October 2015 the European Commission adopted a Regulation, signing the terms of that agreement into law.
The Regulation establishes a new EU-wide retail pricing mechanism for roaming charges with a view to abolishing such charges by by 15 June 2017. The Regulation also ensures the ‘open internet’ by providing for the equal and non-discriminatory treatment of internet traffic, and safeguarding end-users’ rights.
Regulatory news
China and the EU sign major 5G deal
A milestone agreement has been signed between China and the EU to work in partnership in the development of 5G. With £700 million of public funding already earmarked, and deals in place with Japan and South Korea, the agreement with China represents the latest move by the Commission in its ambitious plan to be at the centre of the new generation of mobile networking. Under the terms of the agreement, the EU and China have pledged to work together to reach a global understanding of the concept, basic functionalities, and time scale for developing 5G by the end of 2015. Furthermore, they will work to identify those frequencies that will meet new spectrum requirements and promote global standardisation. The rollout for 5G itself is not expected until 2020.
Ofcom’s Review of Digital Communications closes
Ofcom’s Strategic Review of Digital Communications, a review conducted every 10 years, was launched in March 2015 and seeks to address the future of mobile, landline and broadband in the UK. In particular, the Review will consider the following policy challenges:
- investment and innovation, delivering widespread availability of services;
- sustainable competition, delivering choice, quality and affordable prices;
- empowered consumers, taking advantage of competitive markets; and
- targeted regulation where necessary, deregulation elsewhere.
The Review sought the views of a wide variety of interested parties including consumer groups, academics, public bodies, and those companies that Ofcom regulates. The public consultation closed on 8 October 2015 and a statement on priorities and action, which will focus on its approach to regulation, is expected to be published by Ofcom early in 2016.
From the European courts...
General Court dismisses action challenging abuse of dominance decision
On 17 December 2015 the General Court handed down its ruling in Orange Polska SA & v European Commission (Case T-486/11). The ruling concerned an application by Orange Polska (formerly Telekomunikacja Polska SA (“TP”)) for the annulment of a decision by the European Commission in which it had found that TP had abused its dominant position on the Polish market for the provision of wholesale broadband internet access services by means of unbundled access to the local loop in Poland from 2005 to 2009.
The General Court dismissed the action in its entirety therefore confirming the Commission’s finds that TP had abused its dominant position in the Polish market for wholesale broadband internet access by engaging in a number of abusive conducts towards alternative operators, such as proposing unreasonable terms for access to its infrastructure network, delaying negotiations to discuss access terms and limiting access to its networks. The Commission had found that TP had engaged in such conduct with a view to protecting its position in the retail market and to limit competition at all stages in the procedure for accessing its network. The General Court also declined to annul or reduce the fine of EUR 127.5 million imposed on TP.
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