Does the consolidation of telecoms start from Spain?


“MVNO” may be the magic word

Europe could find itself at the beginning of a new phase in the process of consolidating European mobile operators, a process so longed for and demanded by the telecommunications sector which sees mergers as a means of raising prices, recovering profitability and, hopefully , finance investments.

The European Commission has in fact just opened an in-depth investigation (so-called “Phase 2”) into the merger of the operators Orange and MasMovil which, by joining forces in Spain, would bring the number of Iberian mobile networks from 4 to 3. Although the opening of the investigation may seem a bad sign for those who were hoping for a quick and unconditional green light, some of the reasons expressed by the Commission in its press release seem to suggest interesting scenarios. Indeed, the Commission observes that the merger would restrict competition in the Spanish mobile sector, driving up prices and making it more difficult for mobile virtual operators (MVNOs) to compete:

In Spain, consumers can choose between several competitive fixed and mobile telecom services, often sold as a bundle. MasMovil has been a successful challenger to Orange and other operators in recent years. This is why we are opening an in-depth investigation into the merger between MasMovil and Orange. We want to ensure that Spanish consumers continue to benefit from affordable and high-quality telecom services, including from virtual operators that need competitive wholesale access to fixed and mobile networks in order to offer their services in retail telecom markets.

MVNOs are operators that do not own spectrum and mobile networks, but they use those of others through a wholesale agreement, thus being able to provide mobile services like any other operator: in Europe the most important are Freenet, CoopVoce and PostePay and together they serve 10% of the market.

Back to the past?

The Commission could therefore abandon a mobile competition model focusing on the number of mobile networks (normally 4 on big countries) to switch towards a new paradigm where based on the analysis of a competitive wholesale market where the presence of MVNOs, alongside mobile network operators, could be considered as a relevant factor to authorise potential  mergers. If this were the solution, then in Spain Orange and Masmovil could obtain authorization from the Commission, provided however that they open up the network resulting from the merger to one or more MVNO operators. This way, they would not be forced to sell part of the network and spectrum to a new mobile operator.

For the Commission, this would be a return to the past, since the favor towards mobile mergers conditional on commitments towards the MVNO market had been a characteristic of Brussels during the Almunia era, i.e. until 2014. During this period, and particularly between 2012 and 2014, DG COMP’s Brussels offices cleared mobile mergers in Austria, Germany and Ireland, in all cases allowing for the reduction of mobile operators from 4 to 3 in each national market, but subject to a commitment to bring in operators MVNO in the national market to ensure greater competition. The Austrian case was certainly the exemplary one, as Hutchinson had committed himself to new MVNOs with a kind of access reference offer. Conversely, in Germany and Ireland the MVNO commitments had been weaker and therefore more controversial.

The Vestager Doctrine

Subsequently, with the arrival in 2015 of the new Competition Commissioner, Margarete Vestager, the music had changed, with Commission’s offices generally opposing mergers that would reduce the number of mobile operators from 4 to 3 in big countries. This happened in the United Kingdom and Denmark, where merger plans had collapsed, and so was about to happen in Italy in 2016, where the merger between Hutchinson and Wind was ultimately conditional on the sale of assets and spectrum in favor of a new entrant, the French Iliad. The only exception to the Vestager doctrine had been Holland, where in 2018 the merger between T-Mobile and Tele2, involving the reduction of the Dutch mobile network operators from 4 to 3, had been lightly authorized, thus giving rise to some conspiracy speculation about possible pressure from Germany.

The Spanish case

The Spanish case therefore opens up the possibility of returning to the practice favorable to mobile consolidation which had been practiced in the EU until 2014. The reason for this revirement could be found in the peculiar history of the Spanish mobile market: MasMovil in fact began to operate in Spain as MVNO, thanks to a rare favorable legislation towards these operators, and then developed by acquiring other players until it became a real network operator with own spectrum. A virtuous circle, therefore, which started with an MVNO and which could continue if the Spanish merger were authorized on the condition of opening the Orange/MasMovil network to other MVNO operators. It would not be strange given that MVNO operators are no longer low-cost operators as at the origins, but operators that offer diversified services and customer care, up to the development of innovative IoT services.

MVNO market is changing 

If all this were to happen, mobile operators could begin to look at MVNOs with different eyes, given that very often they accuse them of taking away their market, forgetting, however, that they are real commercial partners, since in 99% of cases they are based on commercial deals with no regulatory interference based on market analyses.

The MVNOs market has changed with respect of the origins: mass-market MVNOs have been a field of shopping for many MNO’s wishing to increase their market share, while the independent MVNOs still resisting in the market provide special features to consumers such as innovative services (IoT in primis) as well as reliable customer care and distribution resources (like post offices and retail shops). Low prices are not any longer a competition tool for mass-market MVNOs, since the absence of regulation may allow hosting MNOs to increase wholesale prices and squeeze their profits. In addition, there are in the market various “fake” MVNOs which are in the reality low-cost brands of incumbent MNOs: such fake MVNOs provide extremely low prices in order to attack the customers base of independent MVNOs or other (competitive) MNOs. This is the case, for instance, of Italy, where incumbent MNOs such as TIM, Vodafone and Wind have set-up low-cost brand (Kena, Ho mObile and very Mobile respectively) with the clear scope to only attack the customer base of Poste Pay, CoopVoce and Iliad.

In Europe mobile access is still regulated on the basis of market analyses only is Norway, where the regulator seems to intend to maintain these measures. An attempt to introduce MVNO regulation has recently failed in the Czech Republic, where the Commission (headed by the CONNECT branch, i.e. by commissioner Breton, former Orange CEO) vetoed the local regulator’s request. In Bulgaria the national regulator CRC is considering, following a court ruling obtained by the altnet group MAC questioning the allocation of 5G spectrum in the country,  a request from alternative operators to require mobile operators with 5G spectrum rights to open up their networks to virtual operators.

Further steps

The European Commission has given itself until 21 August for the final decision in the Spanish case.

Categories: Competition, MVNO

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