Figure 7.5 shows that, with the exception of Ireland and the UK the mobile subsidiary of the fixed incumbent is the largest mobile operator in every Member State. Some incumbents, like BT in the UK and Eircom in Ireland, have voluntarily divested themselves of their mobile subsidiaries. But is there a case for mandating such divestiture?
There are five main arguments in favour of such divestiture:
• divestiture would lead to greater competition in retail mobile service markets. Following divestiture, there are strong incentives for the fixed incumbent to act as an MVNO or independent service provider on one of the mobile operator’s networks. For example, BT has taken this course in the UK
• divestiture would increase the prospects for infrastructure competition between fixed and mobile operators for voice traffic. Currently, there is relatively little competition between fixed and mobile networks for voice traffic in the EU.
According to one study,121 only about 1% of such traffic transfers from the fixed to
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the mobile network each year. In contrast, there is much stronger competition between fixed and mobile operators in the USA, where the number of fixed network long distance minutes is falling at 6% p.a. – largely as a result of mobile substitution. An obvious barrier to such competition in the EU is the fact that the fixed incumbent owns one of the main mobile operators in many Member States. It is clearly not in the interests of such players to increase competition between fixed and mobile networks for voice traffic. In contrast, in the USA, where the main competition is for long distance minutes, five of the six largest mobile operators are independent of long distance carriers or are owned by ILECs122.
• divestiture would increase the level of competition in the provision of public WLAN services. Mobile operators and the fixed incumbent are obvious suppliers of such services.
• divestiture would increase the incentives for innovation in the development of integrated fixed and mobile services. Without a substantial mobile subsidiary, a fixed operator concerned about loss of traffic and revenues to mobile operators, is more likely to launch such services in an attempt to reverse or stem this trend. BT is one of the few fixed incumbents in the EU without a mobile subsidiary. It was the first to announce firm plans for a service which provides, through a single subscription, integrated fixed voice telephony, private WLAN and public WLAN service in ‘hotspots’ and mobile phone service elsewhere
• divestiture makes regulation of deals between the fixed incumbent and mobile operators more transparent and easier to regulate. The fixed incumbent would no longer have any incentive to discriminate between mobile operators in the supply of service bundles or of network infrastructure e.g., for next generation and 3G networks. In addition, mobile operators would compete on equal terms to supply the fixed incumbent with the inputs needed for services like the BT initiative described above.
In addition, the mobile subsidiaries of the fixed incumbents are run as separate businesses operating on separate networks. As a result, the economic objections to Loopco and Netco divestiture do not apply.
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The sixth, Sprint PCS, is quoted separately on the US financial markets as a
tracker stock. Sprint PCS reports separately from the rest of Sprint on its
performance to the investor community. This then leads to changes in the price of the tracker stock. But the shareholder must trade Sprint shares as a whole and cannot trade Sprint PCS tracker stocks on their own.
Figure 7.5 The ownership of the mobile operators in the 15 Member States
Country Mobile subsidiary of incumbent Market share
biggest operator incumbent’s mobile subsidiary
Austria Mobilkom 45% 45%
Belgium Proximus 54% 54%
Denmark TeleDanmark Mobile 44% 44%
Finland TeliaSonera 54% 54% France Orange 49% 49% Germany T-Mobile 49% 49% Greece Cosmote 41% 41% Ireland None 56% na Italy TIM 49% 49% Luxembourg PTT GSM 65% 65% Netherlands KPN 41% 41% Portugal TMN 48% 48%
Spain Telefonica Moviles 54% 54%
Sweden Telia Mobitel 47% 47%
UK None 27% na
Source: Mobile@Ovum
Opponents argue that the benefits of divestiture are not proportionate to the disruption which it would cause. In particular they argue that:
• the mobile subsidiaries of the fixed incumbents cannot control the degree of
competition between fixed and mobile operators in a Member State. If one of more of the other mobile operators in the country decides to compete aggressively to win voice traffic from the fixed networks, the fixed incumbent’s subsidiary will need to respond. For example, the greenfield 3G mobile operator “3” is now setting prices for voice services in Austria, Italy and the UK which suggests that it is following such a strategy
• the impact of divestiture on competition in the public WLAN market will be limited. In any case, this market is currently small and fragmented and future demand is still highly uncertain. For example, Ovum projects an EU public WLAN market worth €0.5 billion Euros in 2008. This compares with a current telecommunications market worth an annual €300 billion
• the need for divestiture to ensure that the fixed incumbent does not discriminate between mobile operators is not proven. There are few, if any, complaints at the moment. The move to next generation networks may create new problems. However, at this stage any such suggestions are merely speculative
• the impact of divestiture on innovation by the fixed incumbent is equally
speculative. We will need to wait several years to see whether divestiture in the UK produces real benefits.
Based on this analysis, we conclude that there is currently no case to require incumbents to divest themselves of their mobile subsidiaries.
The case for or against legal separation (as opposed to divestiture) is less clear-cut. Some incumbents, such as France Telecom123 and Telecom Italia, already run their mobile businesses as separate entities. Others do not. There is a case to require legal separation on the grounds that it increases the transparency of deals done between the fixed incumbent and its mobile subsidiary. This case may strengthen if demand for integrated fixed and mobile service packages grows rapidly. However, many argue that such problems can be dealt with through accounting separation as easily as through legal separation.
We recommend that NRAs monitor closely the extent to which fixed incumbents and their mobile subsidiaries favour each other to the exclusion of mobile rivals and consider legal separation as a remedy in response to such behaviour.
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In France Telecom’s case, the ownership is also slightly different. 17% of Orange is owned by private shareholders who trade shares on the stock market.
8
Measures for effective competition
8.1 Introduction
In trying to enable the growth in public welfare benefits which competition in the ECNS markets can bring, NRAs are constantly faced with the problem of trying to determine the proper relationship between measures designed to promote
infrastructure-based competition and measures designed to promote service- based competition. Many of the respondents to our study raised this issue
unprompted. So in this chapter we:
• assess the relative merits of infrastructure-based and service-based competition
• look at the factors which restrict the viability of infrastructure-based competition and its future development
• consider the role of service-based competition as a complement to infrastructure- based competition
• identify the factors which NRAs need to take into account to achieve the right balance between service-based and infrastructure-based competition
• recommend 11 measures which are designed to increase effective competition in the ECNS markets of the EU by maximising the opportunities for infrastructure- based competition to develop where it is viable.