Evaluating market consolidation in mobile communications


An increase in market concentration in the mobile communications industry generates a true economic trade-off. This is the important finding of a new, original report published today by the Centre on Regulation in Europe. While prices of mobile services have been constantly declining over the last decade, the study considers possible differences between more and less concentrated markets. Compared to markets in which there were no major changes in concentration, the study shows that mergers lead to significant growth in investment per operator while prices also increase, though at a lower rate.

For example, an average hypothetical 4-to-3 symmetric merger increases the bill for consumers by 16.3%, while at the same time capital expenditure goes up by 19.3% at the operator level. More realistic, recent asymmetric 4-to-3 mergers between smaller firms in European countries increase, according to the CERRE report, the bill by about 4-7%, while capital expenditure per operator grows by 7.5-14%.

The CERRE report is co-authored by Tommaso Valletti, a Joint Academic Director of CERRE and Professor of Economics at Imperial College London and at the University of Rome as well as a member of the Economic Advisory Group on Competition Policy (EAGCP) at the European Commission, Frank Verboven, Professor and Chairman of the Department of Economics at the University of Leuven, and also a member of the EAGCP, and Christos Genakos, Assistant Professor at the Athens University of Economics and Business, and Research Economist at the London School of Economics’ Centre for Economic Performance.

The CERRE report analyses the dual impact of market structure on prices and investments and it demonstrates the relevance of that impact, both from an economic and a statistical point of view. It is based on an empirical study which has gathered detailed information related to the experience of individual mobile network operators from 33 OECD countries in the period 2002-2014. This is the largest dataset employed to-date for works of this kind. It provides relevant and comparable information at the operator level, between countries and over time.

CERRE’s Director-General, Professor Bruno Liebhaberg, comments: “European merger policy has often maintained a de facto primacy of low prices over dynamic benefits in the form of more investments. As shown in recent examples, this has inhibited investment at a time when the Digital Single Market constitutes a policy priority in Europe.  With their pioneering report based on a robust methodology and analysis, Valletti, Verboven and Genakos highlight the fundamental trade-off which needs to be properly addressed by regulators when assessing consolidation cases in the mobile communications industry: a merger will have static price effects to the detriment of consumers but also dynamic benefits for consumers, as investments can enhance their demand for services. This new CERRE study should be seen as a contribution to the always complex task faced by competition authorities. As such, it constitutes a perfect illustration of the mission of CERRE, as our think tank is entering a new growth phase in its development.”

Dr Christos Genakos, Professor Tommaso Valletti, Professor Frank Verboven