Competitive effects of mergers and of spectrum divestment remedies in mobile telecommunication markets

Senior Vice President, Helder Vasconcelos, co-authored a paper alongside Duarte Brito for the Telecommunications Policy on the competitive effects of mergers in the mobile telecommunications market.

In this paper, the authors investigate the merger induced effects on consumer surplus in a setting where: (i) the industry is modeled as a triopoly in which firms sell products that are both horizontally and vertically differentiated; (ii) the merging parties are able to pool their spectrum assets; and (iii) the joint management of pooled spectrum assets enables merging parties to offer a better quality service, for which customers are willing to pay more. From a merger policy perspective, the contribution is two-fold. First, they conclude that mergers may benefit consumers even in the absence of any cost-related efficiencies and establish under which circumstances this is more likely to occur. Second, the results also indicate that when the merger has a negative impact on consumer surplus, remedies based on reallocation of spectrum are not very likely to change this outcome. The reason is that the circumstances under which the merger is unlikely to benefit consumers are precisely those under which spectrum reallocation will be unable to fix merger-induced anticompetitive effects.

Introduction

Mobile communications markets are usually characterized by a limited number of operators. Despite being markets exhibiting high concentration, many mobile network operator mergers have been recently proposed and approved subject to remedies (or commitments by the merging parties). Spectrum divestiture is a common remedy in mergers or acquisitions involving mobile network operators. For instance, the U.S. Department of Justice approved the 2020 T-Mobile and Sprint merger with the agreement to sell all of Sprint’s 800 MHz portfolio. In Europe, approval of the 2014 Telefónica DE/ E-Plus merger required Telefónica to lease 10 MHz of paired spectrum in the 2.6 GHz band and 10 MHz of paired spectrum in the 2.1 GHz band. In a recent 2022 case, the Portuguese Competition Authority decided to open an in-depth investigation into the acquisition by Vodafone Portugal of Nowo Communications. Further, in its non-binding opinion regarding the same transaction, the sectoral regulator, ANACOM, defended that the merging party’s commitments “should include the return of at least the spectrum held by Nowo which Vodafone could not bid for in the 2021 Auction”.

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This article was originally published by Telecommunications Policy here. The views expressed in this paper are the sole responsibility of the author and cannot be attributed to Compass Lexecon or any other parties.