Intelligence Brief: Do mergers adversely impact users?

The impact of consolidation on mobile markets continues to be a matter of debate. After all, a merger between mobile operators can drive diverse outcomes which are important to consumers: price; quality; and service innovation. At the same time, the actual impact of a merger depends on multiple factors which could leave consumers better off… or worse off.

It’s by no means a simple issue of arguing industry consolidation is good or bad. It’s a more complicated dynamic.

That’s why competition authorities have such a challenging job when assessing the impacts of a merger, making it so important to look at the outcome of past consolidation. If we understand how previous tie-ups actually affected consumers, we can better predict the effect of proposed mergers. Then we can take informed decisions to the benefit of consumers. Simple enough, right? Not quite.

To date, the evaluation on the impact of mergers on prices has produced mixed results. While some studies find significant price increases [see footnote 1], others do not find any [2]. Some find decreases in prices [3]. As for the impact of mobile mergers on investment and quality, the overall findings are clearer: no study has found that higher market concentration reduces operator investment. Instead, more recent studies have found a positive impact of mergers on network coverage and network speeds [4].

Of course, mergers in the mobile sector are back on the agenda of competition authorities worldwide. US regulator the Federal Communications Commission (FCC) is studying the clearance of a merger between the third- and fourth-largest operators in the country, T-Mobile US and Sprint [1]. The European Commission meanwhile, is looking at the merger between Tele2 and T-Mobile in the Netherlands [2]. If cleared, the merger would reduce the number of players in the country from four to three.

Both mergers are being pursued in order to reach greater scale and realise cost efficiencies, which would enable faster, more cost-effective, rollout of new technologies including 5G.

Wading into these waters is BEREC – the European regulators’ group. In a report, Post-Merger Market Developments: Price Effects of Mobile Mergers in Austria, Ireland and Germany, published in June (the most recent four-to-three operator mobile mergers in Europe), BEREC aimed to shed light on how to think about future mergers.

And what did it find?

On prices, it sees an increase: “there is at least some evidence that retail prices for new customers increased due to the merger”. On quality, it isn’t so sure, citing “uncertain long-run effects”. A combination of “at least some evidence” and “uncertain long-run effects” might seem less than compelling. Even so, there’s real reason to argue BEREC comes up short on actually looking at prices and quality; effectively getting the story wrong.

Let’s look at some examples on the pricing front:
Austria: putting aside the fact BEREC did not consider the late 2013 spectrum auction (which could have driven prices up), pre-merger prices in Austria were low compared to other countries and this means prices in Austria had less room to decrease, regardless of the merger.
Ireland: in some cases, BEREC might have found increases, but for most periods and tariffs analysed, the study admittedly did not find a significant effect from the merger on prices.
Germany: here, BEREC itself considers the evidence of price increases to be “not very robust”. And for MVNOs, which account for about 20 per cent of the market (and have an even stronger presence among low-usage customers), BEREC acknowledges it did not include data for them.

But, let’s put prices aside for a moment. When it comes to the impact on innovation and network quality, both hugely important for consumers, BEREC presents some basic trends in network quality in Austria and Germany. That’s great, but it’s not the same as actually detailing how the merger affected the observed trends. What’s more, it fails to compare network quality with other countries.

To be fair, that’s a lot to ask. But it’s also something the GSMA has spent time on. And what did we find?

A recent GSMA Intelligence (GSMAi) study, Assessing the Impact of Mobile Consolidation on Innovation and Quality, exploring the impact of the Austrian merger found it had significant positive impacts for consumers, with accelerated coverage of 4G by 15 per cent to 30 per cent and higher speeds for mobile broadband. In a separate study, Assessing the Impact of Market Structure on Innovation and Quality, GSMAi also found consistent results for Latin America, with consumers in more concentrated markets in the region experiencing better network quality. The results speak for themselves.

In summary, there is some convincing evidence of consumers experiencing better network coverage and quality as a result of a merger, but the impacts on prices are less clear and BEREC’s recent study does not add any clarity in that regard.

We are on the cusp of 5G networks being rolled out. These bring with them the promise of lower costs, better and new services for consumers. If mergers can facilitate these investments the result can be a positive impact on consumers.

There’s a lot at stake, and competition authorities that are considering proposed mergers clearly have a tough job ahead. Will they get it right?

– Pau Castells, director of economic analysis, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] [3] CERRE 2015 [4], DG Comp 2015 [5], RTR 2016 [6], BWB 2016 [7]

[2] [8] Frontier Economics 2015 [9]

[3] [10] Houngbonon 2015 [11] and HSBC 2015 [12]

[4] [13] GSMA 2017 [14], GSMA 2018 [15]


Press Release: GSMA finds that consumers in developing countries are hard hit by high spectrum prices

Kigali, Rwanda – Better spectrum pricing policies are needed in developing countries to improve the economic and social welfare of the billions of people that remain unconnected to mobile broadband services, according to a new report, ‘Spectrum Pricing in Developing Countries’, released by the GSMA today at the Mobile 360 – Africa conference in Kigali. The study reveals that spectrum prices in developing countries are, on average, more than three times higher than in developed countries, when income is taken into account. This high spectrum pricing is a major roadblock to increasing mobile penetration.

Full Press Release