The Malta Competition and Consumer Affairs Authority has decided to open an in-depth investigation in connection with the proposed Melita Ltd takeover of Vodafone Malta. The proposed deal combines the first and third largest mobile network operators and is one of the largest transactions to take place in Malta. The planned merger would substantially increase concentration in the market, reducing the number of operators from three to two.
Currently, Vodafone accounts for 44 per cent of mobile subscriptions and Melita 17 per cent, which means that after the takeover Melita would become the dominant operator with over 60 per cent market share.
This is therefore an important decision for Malta’s population. Mobile telephony is by far the most important method of communications – almost everybody has a mobile phone. People are also increasingly using their smartphone to send e-mails and enjoy data-hungry applications (radio, map, video etc.). In Malta, the number of mobile phones per capita is among the highest in Europe. On average Malta residents spend €176 a year on mobile telecommunications services.
In the last years, the European Commission has reviewed a slew of mergers in the mobile telecommunications industry. These mergers would have reduced the number of operators from four to three, compared to three to two in the case of Malta. In each case, the Commission undertook a prolonged in-depth investigation to determine whether the merger under review would risk to significantly impede competition and thus gives rise to price increases at the expense of consumers.
In the acquisition of Telefonica by Hutchison in the UK and the joint venture between Telenor and TeliaSonera in Denmark, the Commission deemed that the proposed engagements by the merging parties to remedy the competition concerns were not sufficient to guarantee that these mergers would not restrict competition. The Commission therefore decided to block these transactions. In other cases, the Commission cleared the merger in exchange of important divestments that guaranteed that competition would remain effective post-merger. For example, in 2016 the Commission approved the joint venture between Hutchinson and VimpelCom in Italy in exchange for the divestment of sufficient assets to allow a new entrant to become a fourth mobile network operator.
The fate of the Melita takeover of Vodafone is in the hands of the MCCAA. This transaction appears to raise significant competition concerns. Not only would the acquisition give rise to a dominant mobile operator with 60 per cent market share, but it would also eliminate an important competitive force. Melita’s entry in 2009 led to a sharp decline in prices as both GO and Vodafone responded by improving their offers. Ultimately, all tariffs fell for the benefit of consumers. Further, as Melita was finally planning to roll out 4G technology, residents in Malta would lose the opportunity to choose between three, high-quality, 4G-enabled mobile operators.
The European Commission has unparalleled expertise to assess the competitive effect of complex transactions, and has always conducted a thorough inquiry of mobile mergers before reaching a decision.
Evidently, the MCCAA opted to follow the same path and, in line with best practice, open an in-depth investigation to conduct an all-out assessment of the risks the proposed takeover raises, while seeking the support and technical assistance of the European Commission. Had the MCCAA decided to clear the merger without opening an in-depth investigation, one would have expected that, in exchange, the parties would have offered substantial commitments that would undoubtedly remedy any competition concerns.
Under EU merger control, companies may avoid a prolonged investigation if they offer clear-cut commitments that assure that a third player will enter and succeed on the relevant market. In the case at hand, this surely requires at a minimum the divestment of all Melita’s mobile telecommunication assets (such as mobile radio spectrum, mobile base stations, customer base etc.) to enable a new third operator to come and compete on the market.
Historically, mobile operators which have paid to access other operators’ wireless network have not succeeded in Malta and at best they have remained fringe players. Equally important, and as unexpected as it may sound, the commitments should also include access to Melita’s fixed telecommunications infrastructure. This is because to guarantee a successful and viable new player on the mobile market, it is imperative that this third operator be able to offer customers fixed telecommunications services (notably broadband and fixed telephony) that are as good as those of the new merged entity.
Otherwise, the potential customer base might just be too small, jeopardising the viability of the new player.
Benoît Durand is a partner at RBB Economics, one of the largest global specialised economic consultancies focusing on competition law. Previously, he was director of economic Analysis at the UK’s Competition Commission, and a member of the Chief Economist Office at the Directorate General for Competition at the European Commission.