Sonae/PT: Implications for fixed-line markets. Giulio Federico ACE Meeting 2008 Budapest, November

Transcription

1 Sonae/PT: Implications for fixed-line markets Giulio Federico ACE Meeting 2008 Budapest, November

2 2 ACE Meeting - Budapest 2008 The Counterfactual

3 The counterfactual Market structure PSTN Cable Network Mobile Network Main Competing Networks Wholesale Retail PTC TV Cabo TMN MNOs (Optimus/ Vodafone) Cable (Cabovisao) PT Group (pre-merger) 3 ACE Meeting - Budapest 2008

4 Japan Denmark Switzerland Sweden Korea Iceland Luxembourg United Kingdom Germany Austria Canada Norway Fixed Voice Evidence of weak competition USD PPP PT Poland Turkey Czech Republic Portugal Slovak Republic Australia Mexico New Zealand Belgium United States Spain OECD France Ireland Finland Greece Italy Netherlands Source: OECD Communication Outlook 2005 (data from August 2004) 4 ACE Meeting - Budapest 2008 Fixed Usage Hungary

5 Broadband Lack of platform competition (1/2) 700, ,000 PT Others Broadband Retail Lines 500, , , ,000 85% 70% 100,000 0 PSTN Cable Source: EC 11 th Implementation Report, European Electronic Communication Regulation and Market (data from October 2005) 5 ACE Meeting - Budapest 2008

6 Broadband Lack of platform competition (2/2) 80% United Kingdom 70% Entrants as percentage of total broadband market 60% 50% 40% 30% 20% France Germany Finland Ireland Italy Luxembourg Greece EU-15 Sweden Spain Denmark Austria Netherlands Belgium Portugal 10% 0% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Cable as percentage of total broadband market Note: data from 2004 (cable) and 2005 (broadband) 6 ACE Meeting - Budapest 2008

7 Broadband Slow access-based competition 12% 10% Portugal EU-15 average % of total incumbent PSTN lines 8% 6% 4% 2% 0% Unbundled lines Shared lines Bitstream access Simple resale All lines Note: data from October ACE Meeting - Budapest 2008

8 Broadband Poor performance in term of availability 25% Netherlands Denmark Broadband penetration (population) 20% 15% 10% Italy Ireland Germany Finland Sweden France EU-15 United Kingdom Luxembourg Austria Portugal Spain Belgium 5% Greece 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% % of households passed by cable network and internet ready Note: data from 2004 (cable) and 2005 (broadband) 8 ACE Meeting - Budapest 2008

9 Limited competition in convergent products Triple play (Fixed Voice/TV/Broadband) No Voice over IP on cable network No IPTV on PSTN Effectively no competition in triple-play By default, limited competition in Quad play (Triple play + mobile) Only Sonae/Optimus had introduced a convergent product to-date (OptimusHome) 9 ACE Meeting - Budapest 2008

10 10 ACE Meeting - Budapest 2008 The Remedied Merger

11 Remedied merger Clear from the outset that the remedied merger would have led to platform competition in fixed-line Improvement over (weak) service-based competition Create large second player in broadband [next slide] Create dynamic incentive for New voice competition (from cable) New TV competition (from PSTN) More than compensate for loss of Sonae as service-based competitor in relevant markets 11 ACE Meeting - Budapest 2008

12 Creation of platform competition 90% 80% Pre-merger Post-merger % of total retail broadband lines (October 2005) 70% 60% 50% 40% 30% 20% 10% 0% Market Leader* TV Cabo Other cable Other DSL 12 ACE Meeting - Budapest 2008

13 Remedy design in the fixed-line market Option 1 Option 2 Divest cable network Functionally separate PSTN Allow new owner of cable network to operate as MVNO on network of merged entity New owner of cable network can potentially also acquire mobile sites + spectrum (MNO) Divest PSTN Allow new owner of PSTN to operate as MVNO on network of merged entity New owner of PSTN can potentially also acquire mobile sites + spectrum (MNO) 13 ACE Meeting - Budapest 2008

14 Issue #1: Is functional separation necessary? Remedy aimed at reducing ability and incentive of incumbent to discriminate in provision of quality to accessseekers Economic intention clear but there are drawbacks too Case for vertical separation weaker in telecoms than other industries (e.g. energy) International precedents limited (Openreach in the UK mainly) No experience as a remedy in merger control (UK example was based on a regulatory review) Incremental benefits relative to platform competition unclear (especially in the context of a merger assessment) 14 ACE Meeting - Budapest 2008

15 Issue #2: implications for fixed-mobile competition Higher risk of loss of competition from the merger is in the mobile market The fixed-line remedy package contributed to mitigating this risk by Intensifying fixed-line competition Allow for new converged entrant in mobile market (through MVNO or MNO) Net impact depends on Strength of fixed-mobile substitution (FMS) [next slide] FMC trends: customer preferences and technology New fixed-mobile player potentially powerful, and more effective than Optimus pre-merger Large customer base Efficient pricing incentives Access to extensive platform Case ultimately depends on significance of loss of competition in mobile-only market 15 ACE Meeting - Budapest 2008

16 FMS: evidence of potentially material effects Source: Credit Suisse, September ACE Meeting - Budapest 2008

17 Giulio Federico CRA International Barcelona / London gfederico@crai.com 17 ACE Meeting - Budapest 2008