MNO Mobile Network Operator MOCN Multi-operator core network – a technology that allows two or more core networks to share the same RAN.MORAN multi-operator radio access networkMVNO Mobile Virtual Network Operator . RCBs Relevant customer benefits REEs Rivalry-enhancing efficiencies. RFI Request for information. SRN = shared rural network scheme.
CMA conclusion
The least costly and intrusive remedy/ When selecting a remedy, the CMA must select the least costly and intrusiveremedy, or package of remedies, of those remedy options that it considers will be effective. With respect to the costs of prohibition of the Merger, we have found that prohibition would leave the market structure unchanged and therefore does not cause distortions in outcomes. The implementation of the remedy would not give rise to compliance and monitoring costs. We have also found that the extent of benefits that are appropriate to take into account as RCBs for the purposes of the Act are not significant when set against the adverse effects of the Merger. Therefore, we consider there are only limited costs associated with prohibition of the Merger……However, we acknowledge that prohibition is an intrusive remedy, as it would prevent the proposed Merger from completing….. With respect to the Network Commitment and Time Limited Protections, we have found that while the remedy would require the CMA and Ofcom to incur monitoring costs, these would not be significant, and while there are some distortion risks, these are limited…… The Network Commitment and Time Limited protections would be a less intrusive remedy as it would allow the Parties to complete the Merger. CMA87, paragraphs 3.4 and 3.6. Given our provisional conclusions that none of the costs associated with the remedies are significant when set against the adverse effects of the Merger, our proportionality framework requires us to select the less intrusive remedy. The package consisting of the Network Commitment and Time Limited Protections is therefore our preferred remedy option. 1.574 If the Parties are not willing to offer an Undertaking giving effect to the Network Commitment and Time Limited Protections as outlined in this working paper, we provisionally consider that prohibition would be the only available effective remedyand the CMA would seek to impose an Order prohibiting the Merger. Proportionality of the Network Commitment and Time Limited Protections in relation to the SLC and its adverse effects1.575 Having identified the least costly and intrusive effective remedy, we then consider whether this remedy would be disproportionate to the SLC and its resulting adverse effects. In doing so, we compare the extent of harm associated with the SLCs with the relevant costs of our preferred remedy outlined above. 1.576 Absent remedial action, the provisional SLCs can be expected to lead to price increases for mobile customers (or to equivalent reductions in data packages or service features) affecting tens of millions of mobile users in the UK. We also consider that absent remedial action the Merged Entity – and its competitors – may have less of an incentive to bid for wholesale business and/or may offer less competitive prices/terms to MVNOs. 1.577 As set out above, we consider the costs of the Network Commitment and Time Limited Protections to be limited. The remedy is also not intrusive as it would enable the Parties to complete the Merger. Therefore, we provisionally conclude that our preferred remedy is not disproportionate to the SLC and its adverse effects.Proportionality of prohibition in relation to the SLC and its adverse effects1.578 As set out above, if the Parties are not willing to offer an Undertaking giving effect to the Network Commitment and Time Limited Protections as outlined in this working paper, we provisionally consider that prohibition would be the only available effective remedy and the CMA would seek to impose an Order prohibiting the Merger……. Therefore, we have also considered whether prohibition of the Merger would be disproportionate to the SLC and its resulting adverse effects. As set out above, the provisional SLCs can be expected to lead to price increases for mobile customers (or to equivalent reductions in data packages or service 131features) affecting tens of millions of mobile users in the UK. We also consider that absent remedial action the Merged Entity – and its competitors – may have less of an incentive to bid for wholesale business and/or may offer less competitive prices/terms to MVNOs.1.581 We have also provisionally found that any RCBs that would be lost as a result of prohibition of the Merger would not be significant when set against the adverse effects of the Merger (see paragraphs 1.562). The loss of RCBs is the only cost we have provisionally identified associated with prohibition of the Merger (see paragraph 1.545a). Therefore, in the absence of any less costly and intrusive alternative effective remedy, we consider that prohibition of the Merger would not be disproportionate to the SLC and its adverse effects. Provisional conclusion on proportionality ……We have provisionally identified two effective remedies:(a) Prohibition of the Merger; and(b) The Network Commitment supported by Time Limited Protections.We identified the relevant costs associated with each of those remedies and provisionally concluded that:(a) The only relevant costs in the case of prohibition of the Merger are the loss of RCBs. Any RCBs within the meaning of the Act that would be lost as a result of prohibition of the Merger would not be significant when set against the adverse effects of the Merger. (b) The Network Commitment and Time Limited Protections give rise to monitoring costs for the CMA and Ofcom, and limited distortion risks but, overall, these are limited. We are required, as per our guidance, to select the least costly and intrusiveremedy we consider to be effective. We consider that neither remedy incurs significant costs when set against the adverse effects of the Merger, but that prohibition of the Merger is more intrusive. We therefore consider that the Network Commitment supported by Time Limited Protections is more proportionate than prohibition of the Merger. We consider the Network Commitment supported by Time Limited Protections would not be disproportionate to the SLC and its adverse effects. We further consider that, in the absence of any less costly and intrusive alternative effective remedy – which would be the case if the Parties are not willing to offer an Undertaking giving effect to the Network Commitment and Time Limited Protections as outlined in this working paper – prohibition of the Merger would not be disproportionate to the SLC and its adverse effects.Provisional decision on remedies….. We have provisionally concluded that there are two effective, proportionate remedies that would comprehensively address the provisional SLCs in the retail and wholesale markets outlined in the Provisional Findings. These are: (a) Prohibition of the Merger; and(b) Network Commitment (with the Time Limited Protections described above in the retail and wholesale markets). Our preferred remedy is the Network Commitment supported by the Time Limited Protections, this being the least costly and intrusive effective remedy that is notdisproportionate in relation to the SLC and its adverse effects we have provisionally identified……If the Parties are not willing to offer an Undertaking giving effect to the Network Commitment and Time Limited Protections as described in this working paper, as the only other effective remedy, we would seek to impose an Order prohibiting the Merger
CMA reasoning:
we provisionally found that the Merger may be expected to give rise to an SLC in two markets:(a) An SLC as a result of horizontal unilateral effects in the retail market. In particular, we provisionally found in relation to this theory of harm that the Merger would lead to price increases for mobile customers (or to equivalent reductions in data packages or service features). Any price increases would 5 potentially affect tens of millions of mobile customers, and we had particular concerns about the impact of the Merger on those customers least able to afford mobile services or who might have to pay more for improvements in service quality they do not value.(b) An SLC as a result of horizontal unilateral effects in the wholesale market. In particular, we provisionally found in relation to this theory of harm that the Merged Entity – and its competitors – may have less of an incentive to bid for wholesale business and/or may offer less competitive prices/terms to mobile virtual network operators (MVNOs). In particular, the Merger would reduce the number of mobile network operators (MNOs) from four to three, making it more difficult for independent MVNOs to secure attractive competitive terms which would reduce their ability to compete strongly in the retail market. We considered that this was important because many MVNOs price aggressively, often focusing on value segments of the retail market.1.10 When announcing the Merger, the Parties made a number of claims about procompetitive efficiencies and consumer benefits which they said would result from the Merger. For example, they said that from ‘Day 1’ (ie within the first 12 months from closing the Merger) millions of customers of VUK and 3UK would enjoy a better network experience with greater coverage and reliability at no extra cost. They also said that the combined business would invest GBP 11 billion in the UK over ten years to create one of Europe’s most advanced 5G SA networks, and that the Merger would create a third mobile operator with scale, levelling the competitive playing field, and thereby increasing competition to the UK’s two leading converged operators (BT Group plc (BTEE) and VMED O2 UK Limited(VMO2)).41.11 Part way through the phase 2 investigation, the Parties entered into an agreement with VMO2 (Beacon 4.1) which involves, among other things, the divestment of spectrum to VMO2 (conditional on CMA approval of the Merger). The Parties submitted that Beacon 4.1 would generate further Merger-specific efficiencies, in particular by making VMO2 a more effective competitor in the wholesale and retail markets.5 1.12 The Parties submitted that through the integration of and investment in the Parties’ two networks and Beacon 4.1 the Merger would give rise to substantial rivalry enhancing efficiencies (REEs), which would offset any potential anti-competitive effects of the Merger. In the course of the merger review process, the Parties also supplied us with a number of economic models and submissions.
….but… In our Provisional Findings, we provisionally concluded that the Merger is likely to result in some level of network quality improvements which are rivalry enhancing.6However, we also provisionally concluded that the Parties – given their ability to pursue a range of commercial strategies, which may evolve over time in response to changing market circumstances – were not likely to deliver the full JBP.7 We also considered that the spectrum transfer to VMO2 agreed through Beacon 4.1 would provide a notable and rapid increase in network quality for VMO2’swholesale and retail customers which would further increase network quality competition.8 On the basis of the evidence and analysis at the date of our Provisional Findings, we provisionally concluded that the increased rivalry from those efficiencies which we found were likely to be realised was not sufficient to outweigh the adverse impacts identified in relation to the retail and wholesale markets.9 1.15 We also expressed some doubts whether the full JBP would – if delivered – offset the anti-competitive effects of the provisionally identified SLCs. We invited submissions from the Parties and third parties in this respect, but we did not need to provisionally conclude on that question in our Provisional Findings.
in Ecolab v cma , in cat , was appealed to the Court of Appeal (coa) has explained that, once the CMA has reached a conclusion on the SLC question, ‘then the action which it has to take must be such as to remedy or prevent the SLC concerned. further, the coa held : that it is reasonable for the CMA to not favour a remedy for which it could not feel a ‘high degree of confidence of success’
Remedy types:
(a) Structural remedies (preferred by cma in most cases) such as prohibition and divestiture, are generally one-off measures that seek to restore or maintain the competitive structure of the market by addressing the market participants and/or their shares of the market
(b) Behavioural remedies (ex network commitments) are ongoing measures that are designed to regulate or constrain the behaviour of merger parties. the Merger Remedies Guidance also says that ‘[b]ehavioural remedies can operate satisfactorily in limited circumstances, especially where the company operates in a regulated environment and where there are expert monitors…..he design of behavioural remedies seeks to avoid four particular forms of risk to enable these measures to be as effective as possible:184(a) Specification risks: these risks arise if the form of conduct required to address the SLC or its adverse effects cannot be specified with sufficient clarity to provide an effective basis for monitoring and compliance. (b) Circumvention risk: as behavioural remedies generally do not deal with the source of an SLC, it is possible that other adverse forms of behaviour may arise if particular forms of behaviour are restricted.(c) Distortion risks: these are risks that behavioural remedies may create market distortions that reduce the effectiveness of these measures and/or increase their effective costs. (d) Monitoring and enforcement risks: for behavioural remedies to have the desired impact, it is essential that there are effective and adequately resourced arrangements in place for monitoring and enforcement.
A number of third parties – in response to the Remedies Notice – submitted thatoutcomes in other countries suggest behavioural remedies are ineffective and should not be considered further. Other third parties and the Parties also submitted comparative assessments of the potential remedies considered in this case with previous remedies accepted in other countries in the mobile telecommunications industry, in particular in the context of four-to-three MNO mergers…..BUT….. The CMA’s Merger Assessment Guidelines, reflecting the relevant case law, notes that the CMA’s task in analysing mergers is case-specific.
a divestiture remedy would need to enable a suitable purchaser to compete effectively under separate ownership. However, a purchaser would likely only acquire a sub-set of the assets currently used by the Parties to compete in the relevant markets. This may lead to an MNO that is smaller than either of the Parties today. It is not clear that such an entity would be able to compete effectively in both the retail and wholesale markets where we have provisionally identified SLCs….further, Ofcom also noted that divestiture remedies in the mobile sector have been relatively unsuccessful in restoring a fourth operator and noted that regardless how much spectrum is divested, it remains difficult for the remedy taker to gain market share. One example of the challenges is that the Parties do not own all of thenetwork infrastructure they use, often using neutral hosts (or tower companies) which build passive infrastructure (such as towers and masts). The Parties, and not the CMA, would therefore need to negotiate approval from these third partyinfrastructure providers to allow a new MNO to enter. ….We therefore consider that due to the above risks and practical difficulties an MNO entrant remedy would be high risk in the UK and would not present a sufficient degree of certainty of achieving its intended effect, ie the entry of a new MNO that compensates for the loss of competition resulting from the Merger…..Furthermore, the Parties have expressly stated that they would not consider a partial divestiture remedy, stating that it is commercially unacceptable and would not be accepted under any circumstances.
regarding a possible remedy involving an MVNO becoming an MNO through a partial divestiture, although we consider that the entry of further MVNOs and/or expansion of existing MVNOs might increase competition in the retail market, we consider it unlikely that this type of remedy would comprehensively address our retail concerns, as it would not compensate for the loss of an independent MNO. MVNOs cannot, to a large extent, compete on network quality. Overall, we consider that MVNOs do not offer the same competitive constraint as MNOs in the retail market…… Further, is unlikely that any entry of a new rival (buyer of any divestment remedy) into the wholesale market, would exert a material competitive constraint as a fourth competitor, and could even have material distortive effects on the wholesale market
consideration of possible Ring-fenced capacity remedies:
capacity ring-fencing remedy is an enabling behavioural remedy, as it seeks to create an incentive for the Parties to continue to compete in the wholesale market. this type of ringfencing remedy could either be delivered through a contractual arrangement (ie a commercial reservation remedy) or through a technical segregation of capacity. ex: a commercial reservation combined with a penalty to incentivise the Merged Entity to enter into MVNO agreements….. In the Remedies Notice we invited views on a remedy that seeks to ring-fence a proportion of the Parties’ network capacity exclusively for wholesale customers.89We considered that at the conceptual level, reserving a defined proportion of the Merged Entity’s capacity exclusively for MVNOs could add to the incentive of the Merged Entity to compete for MVNO customers. As MVNOs provide an important source of competition for more price-sensitive customers, it is possible that a ringfencing remedy could also benefit competition in the retail market……Ofcom told us that it should in principle be possible to contractually ring fence capacity whilst allowing all access to the same speeds. For instance, the contract could specify that the MVNOs could access ‘X’ gigabytes (GB), and adjust ‘X’ as the total network capacity grows.99 However, Ofcom has raised concerns that contractual capacity ring-fencing could lead to inefficiencies linked with the difficulties of planning how much capacity would need to be ringfenced………Alternatively, a ring-fencing remedy could be delivered through a technical separation of a determined proportion of the Merged Entity’s capacity. The Parties consider ring-fencing to be an inefficient use of capacity which would eliminate, or at the very least materially reduce, the efficiencies and benefits that the Parties claim will be realised as a result of the Merger.103 Ofcom also told us that technical ringfencing would be inefficient, as it reduces the speeds available to both sets of customers (the MVNOs’ and the MNOs’) and overall reduces the capacity available (or more precisely, results in more congestion for any given level of total traffic).104 Further the Parties estimated that such a technical implementation of a ring-fencing remedy (which would require the Merged Entity to have a 5G SA coreto enable a network ‘slice’ to be ring-fenced) would not be technically feasible until at least three years after completion of the Merger
consideration of poss.merger blocking:
Parties’ and third parties’ views on effectiveness of Merger prohibition1.100 The Parties submitted that prohibition of the Merger would have severe adverse effects on the development of competition in the retail and wholesale markets as the UK’s mobile markets would remain trapped in a low investment, low competition equilibrium.106 They submitted that prohibition would result in the loss of the REEs / RCBs generated by Merger, which represent billions of pounds in value to the UK