Margrethe Vestager is proving to be a positive force for change in her role as Europe’s competition commissioner. In the past year she has shown her willingness to take on Google’s dominant position in EU search traffic, opening formal investigations into this and the US group’s Android operating system after previous dithering by Brussels.
Now she is applying the same tough love to the telecoms sector. Having already blocked one mobile merger in Denmark last September, she has vetoed the proposed £10.5bn takeover of Telefónica’s UK business, O2, by Hong Kong’s CK Hutchison, the owner of the rival Three network.
The decision seals an important change of direction for EU telecoms policy and a victory for European consumers. Under Ms Vestager’s predecessor, Joaquín Almunia, Brussels approved a number of controversial mobile mergers in countries such as Germany and Austria. Not only were these generally opposed by national regulators; they cut the number of operators from four to three — often seen as a level at which competition can be undermined.
The prevailing logic was that some leeway on competition was required to encourage investment in new mobile products and services. This was always dubious, and Ms Vestager has understandably taken a more stringent view.
The case for putting together Three and O2 was difficult to sustain from a consumer standpoint. The two would have accounted for 40 per cent of the UK mobile market, in effect reducing the field to three huge networks and a handful of stagnant virtual operators. The UK has already cut infrastructure competition by allowing the four operators to put their towers into just two network companies. The deal would have undermined this delicate balance, threatening service innovation. The enlarged Three would have straddled both companies.
Hutchison offered concessions to meet the EU’s objections, promising to hold down pricing, increase spending and let rivals establish services on its network. But Three’s own history shows that competition is a better driver of new thinking and investment. Created in 2000 to hold prices down, it has built a profitable business by innovations such as bringing in the smartphone and devising tariffs to support it.
The spotty record of recent European mobile mergers justifies the tougher stance the commission is taking. In the Austrian case, for instance, prices rose sharply after the deal according to an index cited by the national regulator (although they have since fallen back). Meanwhile the boost to investment delivered by these deals is difficult to isolate and detect.
Ms Vestager was correct to treat with suspicion the argument that markets with four competitors are too crowded to support investment. Vodafone, for instance, has been pumping cash into the UK in recent years after its service quality fell behind rivals. She was also wise to heed local objections. While Brussels has competition oversight, mobile telecoms is largely a national preserve in terms of regulation and spectrum provision. Both Britain’s telecoms and competition watchdogs were united in their opposition to the deal.
Although Hutchison has indicated it will appeal, that is unlikely to change the outcome. Ms Vestager, meanwhile, deserves praise for preserving competitive incentives rather than smothering them beneath a nebulous policy of promoting European champions. At a time of scepticism about the EU, competition policy is one way that Brussels can deliver benefits that directly touch citizens. In this endeavour, Ms Vestager has made a good start.
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