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M A G A Z I N E
Maria Maher examines how mobile is becoming a real
substitute for xed-line telephony, and the possible
implications for competition policy as 4G networks are
rolled out
Competition policy trends
in telecommunications
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MLex Ab Extra:
Maria Maher
Maria Maher of AlixPartners has more than 20 years experience as an economist
specialising in competition policy and regulatory matters. She has provided expert
reports and litigation support in relation to competition law cases and regulatory
enquiries, and has particular experience of the telecoms, energy and water sectors.
Before joining Alix Partners, she was with the OECD in Paris and has held academic
positions at Cambridge University and Birkbeck College.
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Maria Maher examines how mobile is becoming a real substitute for fxed-line telephony,
and the possible implications for competition policy as 4G networks are rolled out
Introduction
T
he European Commissions 1997 Green Paper on
convergence of the telecommunications, media and
information technology sectors defned convergence as
the ability of different network platforms to carry essentially
similar kinds of services, or the coming together of consumer
devices such as the telephone, television and personal
computer.
1
Today, that convergence has become a reality.
Different services can be carried on different infrastructures and
the end users access equipment can be designed to provide a
multitude of different services. The rapid growth in broadband
technology and the take-up of mobile devices, such as smart
phones and tablets, has led to the creation of new markets,
and reshaped what and how services are delivered to end users.
There is no longer a clear line between telecommunication
services, information services and broadcasting.
As the lines between voice, data transmission and broadcasting
have eroded, regulators are faced with the task of how best
to classify the converging segments of the telecommunications
sector. Refecting these changes, European countries have
merged their sectoral regulators into single body converged
regulators. In spite of this, regulation and competition policy
in the telecommunications sector has tended to focus on
traditional network access issues. But the delivery of previously
distinct media such as telephony, data communications and
broadcasting into common interfaces on single devices has
brought about new challenges and a need to rethink regulation
and how markets are defned.
These trends have also had signifcant implications for
competition. Access regulation has lowered entry barriers
for new service providers and consequently the number of
providers has increased, contributing to overall competition
in the market. At the same time, IP-based convergence has
resulted in demand for new services in the market, such as VoIP,
IP-TV, mobile TV, mobile broadband, etc. While convergent
IP services provide new opportunities for revenue growth, the
emergence of IP services is also a threat to incumbent service
providers (both fxed and mobile). Using IP technology and the
internet as backbone, new providers can offer a multitude of
services at competitive prices, particularly for traditional voice
telephony. Today, telephone and cable operators, along with a
host of other service providers, compete to provide customers
with traditional voice telephony, high-speed broadband services
that allow for information services and other content such as
gaming, video and broadcasting.
As the number of players has grown, so has investment in
new technologies and more effcient methods of delivering
services. Fixed network operators are upgrading their networks
and rolling out next generation fbre networks (NGN); and
4G auctions in a number of European countries are enabling
mobile operators to roll out Long Term Evolution (LTE)
networks. These investments allow operators to handle
greater data capacity and to deliver it at faster speeds than ever
before. As a result, traditional industry boundaries have been
replaced by an assortment of operators who have leveraged
technological advances to enhance their services. In particular,
providers now offer bundled services
2
that bundle voice
telephony with TV and internet services (triple-play offers) and
in some cases mobile services (quadruple-play offers) that have
resulted in unprecedented opportunities for business growth,
but also increased risk.
Convergence Redefning telecommunications markets
A reassessment of traditional regulatory frameworks and market
boundaries in telecommunications is needed that refects the
changes brought about by convergence. For instance, the advent
of mobile communications, and more recently fxed-mobile
convergence, has changed the way telephony is consumed
in the home and in the offce environment. Fixed-mobile
convergence at the network level allows mobile operators
to offer customers mobile and fxed services seamlessly by
integrating fxed and mobile networks. Convergent services
also exist where there is no convergence at the network level;
and mobile operators can provide fxed-like services through
the use of a virtual landline number.
3
As a result, consumers
and businesses are increasingly substituting hard-wired or
cordless landline telephones with mobile telephones. In fact,
mobile traffc has now surpassed fxed-line traffc in Europe.
According to the European Commission, in 2009 more than
half of all voice traffc came via mobile networks, compared
with only a quarter in 2005.
4
And this trend shows no sign of
abating.
Still, there is some resistance to full substitution by customers,
in part due to the provision of broadband services by fxed
providers. Mobile operators have not yet had suffcient capacity
to provide real alternatives to fxed broadband to facilitate full
fxed and mobile substitution. However, the rollout of LTE
and provision of mobile broadband is likely to change this. The
EUs release of spectrum in the 800
MHz and 2.6 GHz bands for mobile
use, combined with refarming the
current GSM bands, makes the much
anticipated rollout of LTE technology
a reality. The next generation of mobile
networks will deliver much faster
mobile data speeds and capacity than
is currently possible,
5
and make high-
speed mobile broadband more widely
available in the UK an estimated 98
percent of the population will have
such access by 2017.
6
In order to meet the rapid growth in
demand for mobile broadband capacity, regulatory authorities
are already looking to free up and release additional spectrum,
such as the 700 MHz band.
7

These developments will change the competitive landscape
of the telecommunications market and intensify competition
both across delivery networks and between services. As mobile
networks begin to represent a viable substitute for fxed-
line networks, more and more customers may opt to give up
their fxed line altogether in favour of mobile. This will have
implications for regulated wholesale access markets. Prior to
engaging in regulatory intervention, a regulator must frst defne
the relevant market and then determine if any provider has
signifcant market power (SMP) on the relevant market. If
an operator has SMP, then ex-ante regulatory intervention may
be justifed. Defning the relevant market however becomes
more challenging in an age of convergent operators and
bundled services. In particular, barriers to entry and traditional
infrastructure bottlenecks will be reduced by allowing services
to be delivered on a number of different platforms.
These developments will also have implications for competition
cases. As more convergent operators provide services entirely
over their own networks, possible discrimination concerns may
diminish. At the same time, convergence may also increase
competition concerns as it is associated with vertical integration
(e.g. service provision and content provision). If such frms
control access, be it to networks or content, this may raise
discrimination concerns if such operators have incentives to
deny access to non-affliated service providers. Convergent
services also do not ft easily into existing regulatory defnitions
and frameworks. For example, if audio-visual content is
offered on mobile devices through the internet (i.e., mobile
broadband audio-visual services) should this be considered as
telecommunications or broadcasting?
Disputes continue and the battlefeld
will shift to content and bundles
A large proportion of competition cases in telecommunications
have dealt with issues related to access to networks; and in
particular, allegations of exclusionary abuse under Article 102
TFEU (previously Article 82) such
as margin squeeze. A margin squeeze
arises when a vertically integrated
upstream monopolist sets its upstream
and downstream prices at a level such
that a downstream competitor may
not be able to earn a suffcient margin
between the two to cover its costs and,
as a result, may sustain losses. The
Deutsche Telekom, Telefnica, and
France Telecom/Wanadoo cases by
the European Commission are perhaps
the most high-profle cases involving margin squeeze in the
sector, although France Telecom/Wanadoo was considered
as a predation case since at the time France Telecom did not
hold a controlling interest in Wanadoo. In March 2012, the
General Court upheld the commissions decision of July 2007
fning Telefnica 151 million euros for a margin squeeze in the
Spanish broadband market;
8
and in October 2010, the ECJ,
on appeal from the General Court, upheld the commissions
decision of May 2003 against Deutsche Telekom for abusing
its dominant position by squeezing its competitors out of
the market by charging abusive prices for access to its local
network.
9

Cases involving exclusionary abuse related to access to networks
are unlikely to abate in the near term, particularly at the national
level, in both the fxed and mobile sectors.
10
While traditional
margin squeeze cases show no sign of slowing down, the
development of converged services (i.e. bundled offers) will
likely lead to more cases involving abuse of dominant positions
COMPETITION POLICY TRENDS
IN TELECOMMUNICATIONS
Margin squeeze arises
when a vertically
integrated upstream
monopolist fixes
its upstream and
downstream prices
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over bundled services and access to content. For example, an
operator who has negotiated to purchase the exclusive rights to
Formula One Racing may seek to recoup its costs by charging
rival operators an additional fee associated with distributing
this content, thereby squeezing rivals out of the market. This
was the claim made by rival operators in the UK against Sky
over both price and access to Skys premium sports channels.
In 2010, after a three-year enquiry arising from complaints by
rival operators that Sky was preventing them from competing
by refusing to grant them access on fair terms to Skys premium
sports channels, Ofcom ruled that Sky had to offer wholesale
access to its core premium sports channels (CPSC) at wholesale
prices set by the regulator (the wholesale must offer obligation
or WMO).
11
In August 2012, the Competition Appeal Tribunal
(CAT) overturned Ofcoms decision, fnding that Ofcoms core
competition concern, which underpinned its wholesale access
requirement, was unfounded. The CAT also decided that
Ofcoms other competition concerns, relating specifcally to the
prices charged to Virgin Media for wholesale access to Skys
premium sports channels, were again
unfounded.
12
However, in a separate
enquiry by the UK Competition
Commission into movie rights, the
regulator found that, although there
was nothing anticompetitive about
Skys ownership of Hollywood movie
rights, Skys dominance over rivals
meant that competition in the pay-TV
retail market was ineffective.
13
Spains
National Competition Commission
(CNC) has also recently opened an
investigation of broadcasting contracts between football club
Real Madrid and media company Mediapro and whether they
breach competition law.
As triple-play and quadruple-play offers have become
commonplace, competition cases related to margin squeeze in
the presence of bundling are likely to increase. In a competitive
market where bundles are prominent, competition concerns can
arise if there are risks of existing network/platform providers
leveraging their market power from existing networks/
platforms into competitive markets/services.
Barriers to entry could increase if new entrants must offer the
whole array of services in order to compete against established
players. Late market entrants may not always have the same
economies of scale and scope as established players. In such
situations there is an increased likelihood that such operators
may claim that they are victim to anticompetitive business
practices, when, in fact, it may not necessarily be the case.
This issue is tied with the analysis of how bundling impacts
competition when SMP services are bundled with non-SMP
services; and whether one of the bundled services is subject
to squeezing. Defning the relevant market and determining
whether a business practice is exclusionary or simply
competitive forces are at work becomes more challenging in
the presence of convergent services. Invariably, these factors
are likely to render economic analysis increasingly important in
competition cases in the sector.
Increased competitive pressures
likely to drive further consolidation
The drive to transform Europe into a digital economy has to
some extent also fuelled consolidation, a trend that is poised
to continue. Sectors such as wireless have matured and it is
debatable as to whether many of the national markets can
sustain a large number of mobile network operators. While
competition has helped lower costs to consumers, network
operators may be constrained by the signifcant investment
required to roll out NGN fbre networks and LTE technology in
mobile networks, which will make proftability a tall order. The
increased fnancial and competitive pressures are likely to bring
about an increase in M&A activity, particularly in the mobile
sector. In addition, were also likely to
see a higher incidence of joint ventures,
based largely on a more effcient means
of sharing networks. Both of these
trends will have antitrust implications
and result in increased intervention by
competition authorities.
To some extent, markets have already
borne this out. In 2010, France Telecom
and Deutsche Telekom merged their
UK mobile operations, Orange UK and
T-Mobile UK, to create a new entity Everything Everywhere.
More recently, France Telecom has been exiting some European
markets. It sold its Swiss subsidiary Orange Switzerland to a
private equity frm in February 2012 and its sale of its Austrian
subsidiary to Hutchison 3G Austria is currently under review
by the European Commission, with a decision expected by the
end of November. H3G Austria has proposed opening up its
mobile network to new players to allay regulatory concerns that
the deal would reduce the number of operators from four to
three. And in the US, regulators concerns over the impact on
competition caused AT&T to pull out of its attempt to acquire
T-Mobile, in spite of the fact that it had to pay a four billion-
dollar break-up fee.
14

4G auctions that have taken place (or are yet to still take place)
across Europe often carry licence obligations associated with
rollout and coverage, particularly in rural areas. As a result,
mobile operators have been entering into joint ventures or
network sharing agreements to reduce the costs of developing
LTE networks. For instance, O2 UK and Vodafone UK are
creating a joint venture company that consolidates their existing
basic network infrastructure giving each operator access to a
single grid of 18,500 masts, representing a more than 40 percent
increase for each operator while at the same time running two
competing mobile networks.
15
Rollouts of 4G mobile networks
have also begun in France and Germany, prompting operators
in those countries to seek network-sharing deals to share the
investment burden. While joint ventures in general may raise
competition concerns, regulators have not opposed such
agreements, particularly with regard to network sharing in rural
areas where the lack of economies of density does not justify
the costs of rollout. Such joint ventures or network sharing
agreements create greater effciencies as they provide broader
coverage and entail fewer site builds, thus lowering network
rollout costs.
These trends have also been embraced by the European
Commissions Vice President and Commissioner for the
Digital Agenda, Neelie Kroes, who views consolidation as
the optimal way for Europe to develop strong cross-border
telecom leaders to support the costs of investments in 4G
mobile networks.
16
The costs associated with the development
of such infrastructures are such that the number of players
in the market will continue to shrink. Although Kroes views
that having a few pan-European operators that are strong
in the cross-border market would not necessarily be bad for
competition, it remains to be seen whether joint ventures,
network sharing agreements and consolidation will lower
competitive pressures in the future.
Conclusion
The rollout of 4G mobile networks that will provide faster
mobile broadband speeds and capacity than is currently possible
is making fxed-mobile substitution a reality. The provision of
services on alternative networks or platforms will lead to a
decrease in barriers to entry and have a profound impact on
competition in the sector. The use of mobile networks for the
provision of fxed-like services, the use of the fxed network
for the provision of IP-TV, or the provision of voice on cable
networks using VoIP are just some of the examples of
increased competition in services. However, the convergence
of these mediums and rapid technological change has thrust
upon European lawmakers a need for new models to assess the
competitiveness of the sector and whether ex-ante regulatory
action is justifed. In particular, the bundling of telephony, TV
and internet through one provider will lead to new issues related
to competition. In many ways, distinguishing exclusionary
anticompetitive practices from procompetitive practices is
likely to grow more complex and is a more challenging task in
the presence of bundled services and converged operators. n
Maria Maher is a Director at AlixPartners in London. The views
expressed in this article are personal to the author and do not refect the
view of AlixPartners or any of its clients.
The bundling of
telephony, TV and
internet through
one provider will lead
to new issues related
to competition
Footnotes
1 http://ec.europa.eu/avpolicy/docs/library/legal/com/
greenp_97_623_en.pdf
2 Bundling arises when a frm sells two or more services together
as a package at a joint price. Bundling may provide signifcant
costs savings it is often less expensive to sell several services
together than to sell them separately. Or it may be due to
complementarities e.g., software programs sold in bundles often
work better together than off-the-shelf programs.
3 For an example of such a services, see Vodafones Unifed
Communications offer, http://www.vodafone.co.uk/business/
business-solutions/unifed-communications/index.htm?WT.
srch=1&cid=ppc-goo-ebu.
4 European Union Digital Agenda Scoreboard, 2011, http://
ec.europa.eu/information_society/digital-agenda/scoreboard/docs/
pillar/electronic_communications.pdf
5 The lower frequency 800 MHz band is ideal for widespread mobile
coverage, providing better in-building coverage in high density
urban areas and lower roll out costs in rural areas; while the
higher frequency 2.6 GHz band delivers the capacity needed to
delivery faster speeds. This combination of low and high frequency
spectrum creates the potential for 4G mobile broadband services
to become widely available, while at the same time offering
capacity to cope with signifcant demand in urban areas.
6 Statement by Ofcom, Assessment of future mobile competition
and award of 800 MHz and 2.6 GHz, July 24, 2012, http://
consumers.ofcom.org.uk/2012/07/ofcom-unveils-plans-for-4g-
auction-of-the-airwaves/
7 Ofcom Consultation, Securing the long term benefts from scare
spectrum resources A strategy for UHB bands IV & V, 29 March
2012, http://stakeholders.ofcom.org.uk/binaries/consultations/uhf-
strategy/summary/spectrum-condoc.pdf
8 http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/
12/233&type=HTML
9 http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/
10/493&type=HTML
10 In mobile telecommunications these allegations often revolve
around operators pricing practices with regard to on-net vs. off-net
pricing.
11 http://stakeholders.ofcom.org.uk/binaries/consultations/third_paytv/
statement/paytv_statement.pdf
12 http://www.catribunal.org.uk/fles/1156-59_Judgment_
Extract_080812.pdf
13 However, the Commission is powerless to tackle the issue at this
time as it was asked by Ofcom to look specifcally at the role of
frst pay-movie content and Skys position with regard to those
rights. The Competition Commissions pay-TV market report can
be found at http://www.competition-commission.org.uk/our-work/
movies-on-pay-tv.
14 http://arstechnica.com/tech-policy/2011/12/att-admits-defeat-on-t-
mobile-takeover-will-pay-4-billion-breakup-fee/
15 http://www.computing.co.uk/ctg/news/2182709/vodafone-o2-
merge-network-infrastructure-rival
16 M&A Could Help Telcos Close Europes Network Gap, Reuters,
June 11, 2012, http://www.msnbc.msn.com/id/47767498/ns/
technology_and_science-wireless/t/ma-could-help-telcos-close-
europes-network-gap-kroes/