Do opinions weigh more than facts?
At the Concurrences’ New Frontiers of Antitrust conference in Paris on Monday this week, the EU Antitrust Commissioner Margrethe Vestager stated that she is against operator market consolidation as there is no evidence that it leads to increased infrastructure investments. On the contrary, she stated infrastructure investments can be stimulated by increased competition citing operator Free’s arrival to the French market as an example.
It is actually quite hard to argue for or against a Commissioner that comes with such sweeping statements. Obviously, if the consolidation was leading to mono or duopoly markets she is probably right, but that is not the case for the current consolidation trend which is more focusing on reducing the number of operators from four to three per market. I have sympathy for the worry that many antitrust authorities have about the consolidation. It is logical to believe that when a market is going from four to three players the competition between operators will decrease, but the reality is that we do not know how it will play out. People and organisations against market consolidation love to take Austria as an example and claim that prices increased after 3 acquired Orange and the market went from four to three players. The only problem with that as evidence is that it only measures the price movements immediately after the consolidation. Other studies suggest that prices actually have been falling. If one endeavored seriously to look at price trends before and after consolidation and make assessments of the impact, a much longer period of time would be required. Two markets that have had three operators over a longer period of time are Finland and Lithuania. Interestingly enough both have among the lowest prices for mobile services in Europe. Hence there is stronger support for that three player markets have fiercer competition than the other way around. I only make that point to show that we need to look at other aspects for assessing why consolidation is happening and what it possibly can lead to.
To go back to the roots of the current operator market it is good to remember that we since the late 80’s have left behind us the state owned monopoly operator market, you know the one where customers in some western markets had to wait for two years to get a plain telephony service. Since then, basically all network investments in the world are financed by venture money from the private sector. An important criteria for attracting private investors is that you can trade your investments i.e. selling or buying your assets as needed. That is an integral part of why it has been possible to finance hundreds of billions of dollars in network investments over the last 25 years, otherwise the only other source is taxpayers money i.e. how it was before privatization. We are now in a situation where a number of investors in operators conclude that rather than continuing to invest in a #3 or #4 operator business, they see better prospects in selling to someone who get better scale and synergies. This trend is not strange at all. After 25 years of growth the operator market has reached maturity stage where investment requirement are continuously high while revenues and returns are declining. A small market share player trying to grow needs to put a majority of its funds in trying to win over subscribers from the other players in the market, leaving them with less room for investments in network. You simply need to be a top two or three player in a market for having a sound business case. Maintaining a market with several subscale operators will only benefit the ex-monopolist.
The idea that the regulators and competition authorities should stop what should be seen as a natural consolidation after a long growth era is wrong. It will not lead to more investments in networks rather the other way around. What they should focus on is how to ensure that the three player markets will function well with competition in pricing, innovation and investments. With continued high investments in networks and strong price competition we actually do not know how sustainable even a three player market is either, particularly not if network sharing is not allowed or is discouraged through complex regulations. What authorities should focus on is to ensure that a healthy three player market is as long-lived as possible. It will in most cases mean that access to spectrum and passive infrastructure elements is not unduly favoring the ex monopoly operator and that network sharing is encouraged to the furthest possible extent. Increasingly the operator market will be a utility like market similar to electricity and gas. It would be good then not to have been dragged back to square one with only one player per market.
Bengt is the CEO of Northstream