Another sign of Brussels having more faith in markets?

Here is a case which might be another piece of evidence of the Commission refraining from unduly intervening in markets. This of course may not be more than mere speculation but the Commission decided to forgo an in-depth analysis into the effects of a merger that in the past would have raised serious regulatory concerns. The remedies offered were very much forward-looking and the Commission accepted them without worrying about the more static effects of the merger. Is that another sign of the start of a new era of European competition enforcement? (This post also contains a link to my preliminary simulation of the Orange / T-Mobile merger.)

In 2009, T-Mobile and Orange decided to merge (more precisely to form a 50-50 joint venture) their UK subsidiaries, creating a mobile phone giant with nearly 30 million customers. Although the public anticipated the merger to create severe problems in the UK mobile telephony market the approval was much smoother than expected. As a personal opinion, I believe this was the case because the European Commission discussed the case, as the two parties – in a very cunning way – notified their merger at the Commission instead of the OFT (the UK competition regulator) – a fine example of `regulator shopping’. In early February 2010, the OFT sought permission from the Commission to refer the case to UK investigation, which was unanimously welcomed by competitors (O2, Vodafone, and 3).

On the 1st of March 2010 the Commission announced the approval of the merger without an in-depth investigation, subject to the commitments made by the parties involved. The commitments ensured that Orange and T-Mobile would amend their existing network sharing agreement with 3 to ensure sufficient competition in the market, and the divesture of a quarter of the combined spectrum of the merging parties in the 1800 MHz band. Following the decision, the OFT withdrew its request, having been satisfied by the concessions offered by Orange and T-Mobile.

Although the merger resulted in overlaps in all segments of the mobile communication industry, the approval was unexpectedly smooth, primarily because the parties offered to eliminate the only concerns the Commission identified, i.e. the creation of a near monopoly position on the market of 1800MHz data transmission. The remedy only aims at ensuring that the supply side is capable of accommodating a level of competition, which then guarantees that changes on the demand side will not harm consumers in the longer run. The demand-side of the market was not mentioned in the Commission’s communications. In my interpretation this is an unusually dynamic approach from the Commission for two reasons: (1) the 1800MHz segment is the most technologically cutting edge area, which is likely to completely replace the currently most common technologies; (2) the immediate effect of the merger may be a price increase in the short run, but new technologies may completely restructure the market in the longer run and the elimination of a monopoly situation in one of these new technologies may be sufficient to eliminate concerns without unduly intervening in the market.

As a preliminary check whether forgoing an in-depth analysis was appropriate and in line with the Commission’s practice I ran a simple simulation on the partial effects of the merger (prepay subscription segment, see here). Prepay subscriptions are probably the most elastic market segment of mobile telecommunication, nevertheless a price increase was predicted even in this segment. Although I personally would welcome a Commission that is more averse to intervention, it is difficult to see how the Commission was able to assess the effects of the joint venture and the proposed modifications in such a short time-interval in light of earlier EC practice. Is this another sign of Brussels having more faith in markets and market dynamics?

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