EC merger decision in Austria reduces number of mobile operators from four to three

OVUM VIEW

Summary

The EC has approved the proposed takeover of Orange’s Austrian subsidiary by 3 Austria. The acquisition will cost 3 a reported $1.84bn (€1.40bn), and will reduce the number of operators in the Austrian mobile market from four to just three. The merged entity will have a market share of nearly 28%, and will be a strong third firm in what will become an even more concentrated oligopoly. The acquisition of Orange is an attractive prospect given its large customer base and substantial holding of valuable spectrum.

The EC did consider that removing one of only four market players could be detrimental to competition and therefore consumers, but its fears were alleviated by 3’s promise to implement an appropriate “commitments package”. This package is designed to facilitate the entry of new undertakings, and includes assurances from 3 that it will divest radio spectrum and guarantee access to its network for MVNOs. The EC believes that these commitments will ensure that there is no threat to competition.

The ruling will result in a highly concentrated mobile industry in Austria

On December 12, 2012 the EC announced that it had finally granted approval to 3 Austria (owned by Hong Kong’s Hutchison Whampoa) to proceed with the acquisition of France Telecom’s subsidiary Orange Austria. There are currently four MNOs active in Austria: A1 Telekom, T-Mobile, Orange, and 3. A1 Telekom is the number one player in Austria, with a 40.5% share of the market, followed by T-Mobile (31.2%), Orange (17.6%), and 3 (10.3%). The takeover will mean that there will be only three large mobile operators in Austria, and will leave the market an even more concentrated oligopoly.

The EC admitted that it did have concerns that the takeover could lead to a lessening of competition in the mobile sector and, in turn, to higher retail prices for consumers. Most countries in the EU have three or four national mobile operators, and some – the UK, for example – have put measures in place to ensure the presence of their preferred number of MNOs in the market. In the US, meanwhile, the merger of AT&T and T-Mobile was blocked by the Department of Justice on competition grounds. Many observers believed that the 3/Orange merger in Austria would not be allowed to go ahead until Orange sold its MVNO Yesss to A1 Telekom. That sale was approved by the Austrian cartel court on December 11, 2012.

The merger means 3 will be well placed to offer 4G services

The Austrian government has set an ambitious target of 100% mobile broadband coverage by 2013. To meet this objective it planned to award digital dividend frequencies in the 800MHz band and to liberalize GSM usage rights in the 900MHz and 1800MHz bands for UMTS and LTE technologies in late 2012. However, the ongoing discussions around the takeovers of Orange and Yesss by 3 and A1 Telekom respectively led the TKK to postpone the release of spectrum in these bands. A delay to new auctions will have an impact on the country’s broadband plans and coverage targets.

Although 3 does not currently hold spectrum in the 900MHz or 1800MHz bands, after it acquires Orange the merged entity will have a relatively high share of 1800MHz spectrum (2×29MHz), as well as a small amount of 900MHz spectrum (2×4MHz). This presents 3 with an opportunity in terms of the rollout of 4G. Austria is one of the more advanced mobile markets in the EU – 4G was launched in the country in October 2010. Although 3, which grew by 27% between 2010 and 2011, already offers 4G services over 2.6GHz, gaining Orange’s spectrum will allow it to accelerate its rollout of these services. The 1800MHz spectrum is particularly valuable as it offers a good balance of coverage and capacity, especially because some popular devices, including the iPhone 5, are currently running 4G services only at this frequency.

The regulator will need to ensure the fair distribution of spectrum

The EC confirmed that its decision to approve the merger will be conditional upon 3’s implementation of a “commitments package” that enables new operators to enter the Austrian mobile market. This is a promising point; 3 put forward the package in order to neutralize the potentially detrimental competition issues which could arise as a result of the acquisition. The package commits 3 to providing wholesale access of up to 30% of its network to up to 16 MVNOs for a period of 10 years. The operator also agreed that the takeover of Orange would not move forward without its signing at least one such wholesale access agreement with an MVNO. In fact, it signed such an agreement with UPC in October 2012.

When the regulator takes its decisions on refarming and the 800MHz auction it will need to consider spectrum holdings between operators. The current allocation of spectrum in the 900MHz band is highly skewed, with A1 Telekom holding a major chunk of the total available spectrum in the band. Although 3’s commitments package obligates it to divest a certain part of its spectrum holdings to a new operator, which would help stimulate competition, it will be reluctant to divest the spectrum it has just obtained from the takeover. The TKK will need to implement a stringent auction procedure for 800MHz that allows at least one new entrant to obtain enough spectrum to credibly compete with the established operators.

APPENDIX

Author

James Robinson, Associate Analyst, Regulation and Policy

james.robinson@ovum.com

Further reading

Austria (Country Regulation Overview) (September 2012)

Disclaimer

All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publisher, Ovum (an Informa business).

The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions, and recommendations that Ovum delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Ovum can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.