4-to-3 mobile mergers: a review of the evidence
Compass Lexecon has conducted a meta-study of 25 empirical studies on the relationship between mobile market concentration and prices, investment and quality and whether earlier mergers impacted the rate of decline in average revenue per gigabyte consumed. The aim of the study is to ensure a better evidence base for competition authorities and regulators in assessing whether a proposed merger is likely to benefit or harm consumers.
Key points
Over the last decade, five 4-to-3 mobile mergers have been approved in Europe and one in the US.
The post-merger effects of many of these mergers have been extensively studied and commented on by regulators, academics, and consultants.
Looking at these studies together, alongside studies estimating the relationship between market concentration and outcomes, there is no basis for a presumption that 4-to-3 mobile mergers will result in higher prices or lower quality.
The number of operators is not decisive in assessing the likely effects of a new merger. A proper assessment of the likely effects of the merger needs to consider market-specific and merger-specific factors.
4-to-3 mergers and relevant literature
Whether mobile mergers benefit or harm consumers is an important question for competition and regulatory authorities, and so a significant literature has developed on the relationship between mobile market concentration and prices, investment and quality. This includes papers by authorities such as Ofcom and the European federation of telecoms regulators, BEREC.
The analyses carried out in the literature fall into two broad categories. Some estimate the effects of a specific merger on market outcomes in the relevant country. Others look at the relationship between the number of mobile operators and market outcomes by analysing data from multiple countries (either as a snapshot in time, or over an extended period).
We are aware of 25 independent papers which include such analysis (most of these papers focus on one of the two broad categories of analysis, but two papers include both). Of these, there are ten papers (some papers cover more than one merger) which estimate the effects of four specific recent mobile mergers:
Austria 2013 (nine papers): Hutchison, the owner of Drei, acquired Orange Austria. The combined company had a market share of 20 – 30% post-merger.
Ireland 2014 (two papers): Hutchison, the owner of Three Ireland, acquired O2 Ireland creating a combined company with a market share of around 40%.
Germany 2014 (two papers): Telefonica, the owner of O2 Germany, acquired KPN’s German subsidiary E-Plus. As in Ireland, the combined company also had a market share of 30 – 40% post-merger.
United States 2020 (one paper): T-Mobile acquired Sprint. The combined company had about 30% market share post-merger.
Seventeen of the 25 papers analyse the relationship between the number of mobile operators and market outcomes across multiple countries – i.e. papers looking to draw more general conclusions on the relationship between market concentration and price and/or quality.
Many studies show 4-to-3 mergers have benefited consumers, but the evidence is mixed
The meta-study provides an ‘in the round’ review of the existing empirical studies to assess what conclusions can be drawn on the relationship between mobile market concentration and prices, investment and quality. It also provides new analysis on the impact of the above four 4-to-3 mobile mergers, as well as the Italian Wind/Tre merger (2016) and the Dutch T-Mobile/Tele2 merger (2018), on quality-adjusted prices. In summary:
These mobile mergers have had little impact on prices, typically having no effect at all, or increasing prices for some customers for a short period only.
The impact of these mergers on industry investment and mobile service quality has generally been positive for consumers, for instance by extending network coverage and/or increasing download speeds.
With limited effect on prices and better quality, the 4-to-3 mergers since 2010 appear to have provided customers with better value for money. Across the industry, quality-adjusted prices (measured by average revenue per gigabyte of data) have been falling for many years. Of the countries assessed in the meta-study, this downward trend accelerated post-merger in two countries (Austria and Ireland), continued to fall at the same rate in three countries (Germany, Italy, and the US), and did not fall as fast post-merger in the sixth (the Netherlands).
Studies examining the effect of concentration on price and quality have come to differing conclusions on whether there is any systematic relationship and, if so, the nature of that relationship. The differences in results reflect a range of reasons including differences in the groups of countries being considered, different time periods, different price and quality measures and different methods to control for other factors.
Overall, the meta-study finds there is no sound basis for a presumption that 4-to-3 mobile mergers are likely to harm consumers.
Relevance of empirical studies in assessing mergers
The literature estimating the relationship between concentration and market outcomes is inconclusive. Rather it points to a need for caution when considering the impact of a specific merger.
There are several reasons for this. For example, the estimated effects will vary depending on market and merger-specific factors, including market structure, which players are merging and which particular prices or quality parameters are being considered. Data and methodological choices can also influence the results. These factors mean that any individual study could be subject to bias or reflect only a partial view of the impact.
A meta-study such as this can help identify the possible distortions that arise from study-specific design choices. Even then, there are many factors which influence both concentration and market outcomes, and which therefore limit the relevance of empirical analysis to a new merger. It is vital to understand these differences and consider a wide evidence base beyond specific empirical studies when making a judgement about a proposed merger.
The number of operators alone is not decisive – any proper assessment of the effects of a new merger requires careful assessment of both likely price and quality effects in light of specific merger and market factors.