Comments on the Mobile Telecoms Sections of the European Commission’s Report on the State of Competition in the EU

In this article Jorge Padilla, Ian Small, Thilo Klein and Paul Reynolds review the mobile telecoms sections of the European Commission's report 'Exploring aspects of the state of competition in the EU'. 

The views expressed in this paper are the sole responsibility of the authors and cannot be attributed to Compass Lexecon or any other parties.

Abstract

This paper reviews an empirical study of the impact of market concentration on prices and investment in retail mobile communications markets set out in “Exploring aspects of the state of competition in the EU”, a study commissioned by the European Commission. The study finds that a reduction in the number of MNOs can be expected to lead to an increase in Average Revenue Per User (ARPU) and a reduction in the market-wide volume of capital expenditure (CAPEX). The study also finds that the number of MVNOs in a market has no impact on ARPUs.

Overall, we find that the study does not provide any useful insights into the impact of market concentration on consumer outcomes. In particular:

• ARPUs are not a good proxy for the prices of mobile services, because ARPUs are a function not only of unit prices, but also of usage levels and quality of service. Therefore, even if the study was correct that a reduction in the number of MNOs is associated with an increase in ARPUs, this would not necessarily indicate an anti-competitive outcome, as it could be driven by an increase in usage and/or a quality improvement, rather than an increase in unit prices.
• Market-wide CAPEX is not a good proxy of network quality, such as download speeds and coverage, which is what consumers ultimately care about. If markets with four MNOs are found to have higher market-wide CAPEX than markets with three MNOs this might be due to a larger amount of duplication of fixed costs, rather than investment in quality upgrades.
• The study’s findings may not apply to the impending 5G era. The study focuses only on the 4G era, but deploying a 5G network is much more costly compared to earlier generations of mobile technology.
  

Finally, the empirical approach used in the study suffers from several methodological issues, which casts doubts on the reliability of the results. These include the use of the number of MVNOs as a measure of the competitive constraints imposed by MVNOs in a given market. This measure is unreliable, as it does not take into account the market shares the MVNOs have been able to obtain.

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