EN
This text is made available for information purposes only.
A summary of this decision is published in all EU languages in the Official Journal of the European
Union.
Case No COMP/M.6497 –
HUTCHISON 3G AUSTRIA
/ ORANGE AUSTRIA
Only the EN text is authentic.
REGULATION (EC) No 139/2004
MERGER PROCEDURE
Article 8 (2)
Date: 12/12/2012
EUROPEAN COMMISSION
Strasbourg, 12.12.2012
C(2012) 9198final
COMMISSION DECISION
of 12.12.2012
addressed to:
Hutchison 3G Austria Holdings GmbH
declaring a concentration to be compatible with the internal market and the EEA
agreement
(Case No M.6497 – HUTCHISON 3G AUSTRIA / ORANGE AUSTRIA)
(Text with EEA relevance)
(Only the English text is authentic.)
PUBLIC VERSION
EN 2 EN
TABLE OF CONTENTS
1. THE PARTIES............................................................................................................. 7
2. THE CONCENTRATION........................................................................................... 8
2.1. The acquisition of Yesss! by TA.................................................................................. 9
2.2. Acquisition of Orange assets by TA from H3G........................................................... 9
3. UNION DIMENSION ................................................................................................. 9
4. PROCEDURE ............................................................................................................ 10
4.1. General procedure ...................................................................................................... 10
4.2. Referral Request......................................................................................................... 11
5. RELEVANT MARKETS........................................................................................... 11
5.1. Introduction................................................................................................................ 11
5.2. Product markets.......................................................................................................... 12
5.2.1. Mobile telecommunications services to end customers ............................................. 12
5.2.1.1. Private and business customers.................................................................................. 12
5.2.1.1.1. The view of the Notifying Party............................................................................... 12
5.2.1.1.2. The Commission's assessment ................................................................................. 12
5.2.1.2. Pre-paid and post-paid services.................................................................................. 13
5.2.1.2.1. The view of the Notifying Party............................................................................... 13
5.2.1.2.2. The Commission's assessment ................................................................................. 14
5.2.1.3. Type of Technology (2G, 3G and Future 4G Technologies) ..................................... 14
5.2.1.3.1. The view of the Notifying Party............................................................................... 14
5.2.1.3.2. The Commission's assessment ................................................................................. 15
5.2.1.4. Voice telecommunications and data services............................................................. 16
5.2.1.4.1. The view of the Notifying Party............................................................................... 16
5.2.1.4.2. The Commission's assessment ................................................................................. 16
5.2.1.5. Fixed and mobile data services .................................................................................. 18
5.2.1.5.1. The view of the Notifying Party............................................................................... 18
5.2.1.5.2. The Commission's assessment ................................................................................. 18
5.2.1.6. Conclusion.................................................................................................................. 19
5.2.2. Wholesale market for access and call origination on public mobile telephone net-
works.......................................................................................................................... 19
5.2.2.1. The view of the Notifying Party................................................................................. 19
5.2.2.2. The Commission's assessment ................................................................................... 19
5.2.2.3. Conclusion.................................................................................................................. 20
5.2.3. Wholesale market for international roaming.............................................................. 20
EN 3 EN
5.2.4. Wholesale market for mobile call termination........................................................... 20
5.3. Geographic markets ................................................................................................... 21
5.3.1. Mobile telecommunications services to end customers ............................................. 21
5.3.2. Wholesale access and call origination on public mobile telephone networks ........... 21
5.3.3. Wholesale market for international roaming.............................................................. 22
5.3.4. Wholesale market for mobile call termination........................................................... 22
6. COMPETITIVE ASSESSMENT IN THE MARKET FOR MOBILE TELECOM-
MUNICATION SERVICES TO END CUSTOMERS ............................................. 23
6.1. Introduction................................................................................................................ 23
6.2. Factors likely to lead to a significant impediment to effective competition.............. 24
6.3. Description of the market........................................................................................... 27
6.3.1. Market players in Austria (MNOs, MVNOs, resellers) ............................................. 27
6.3.1.1. MNOs......................................................................................................................... 27
6.3.1.2. MVNOs and second brands ....................................................................................... 29
6.3.1.3. Resellers ..................................................................................................................... 30
6.3.2. Regulatory requirements for setting up mobile telecommunications networks......... 30
6.3.2.1. General authorisation ................................................................................................. 30
6.3.2.2. Allocation of frequencies ........................................................................................... 30
6.3.2.3. Approval of customer terms and conditions .............................................................. 30
6.3.2.4. Ancillary regulatory requirements ............................................................................. 31
6.3.3. Regulatory requirements for installing new masts..................................................... 31
6.3.4. Spectrum auctions ...................................................................................................... 33
6.4. Market shares and market structure post-merger....................................................... 34
6.4.1. Introduction................................................................................................................ 34
6.4.2. Market shares on the overall market for mobile telecommunications services to end
customers.................................................................................................................... 34
6.4.3. HHI and other indicators of the competitive dynamics in the market ....................... 36
6.4.3.1. HHI and delta values.................................................................................................. 36
6.4.3.2. Differential effects of the transaction according to market segments........................ 36
6.4.3.2.1. Post-paid private voice and data segment ................................................................ 39
6.4.3.2.2. Data-only segment.................................................................................................... 41
6.4.3.2.3. Indications of market strength based on new business ............................................ 43
6.4.3.2.3.1. New business for post-paid private voice and data ............................................... 45
6.4.3.2.3.2. New business for data-only devices ...................................................................... 46
6.5. Switching and closeness of competition .................................................................... 46
6.5.1. Diversion ratios .......................................................................................................... 48
EN 4 EN
6.5.1.1. The view of the Notifying Party................................................................................. 48
6.5.1.2. The Commission's assessment ................................................................................... 48
6.5.1.2.1. Evidence on switching from the MNP Data............................................................. 48
6.5.1.2.2. Evidence from surveys............................................................................................. 50
6.5.2. Other evidence on closeness of competition.............................................................. 50
6.5.2.1. The view of the Notifying Party................................................................................. 50
6.5.2.2. Analysis of market data.............................................................................................. 50
6.5.2.2.1. Private post-paid voice-enabled segment................................................................. 50
6.5.2.2.2. Data-only segment.................................................................................................... 54
6.5.2.3. Results of market investigation.................................................................................. 58
6.5.2.4. Internal documents..................................................................................................... 59
6.5.3. Conclusion.................................................................................................................. 62
6.6. H3G as important competitive force (Pre-merger v. Post-merger)............................ 62
6.6.1. The view of the Notifying Party................................................................................. 62
6.6.2. The Commission's assessment ................................................................................... 63
6.6.2.1. Current competitive strength of H3G......................................................................... 63
6.6.2.1.1. Internal documents ................................................................................................... 64
6.6.2.1.2. Conclusions on H3G as an important competitive force.......................................... 65
6.6.2.2. Impact of the Proposed Transaction on H3G's incentives to compete....................... 65
6.6.3. Conclusion.................................................................................................................. 69
6.7. Absence of countervailing factors.............................................................................. 69
6.7.1. Barriers to entry and likelihood of new entry ............................................................ 69
6.7.1.1. Prerequisites for market entry .................................................................................... 69
6.7.1.2. Non-availability of spectrum...................................................................................... 70
6.7.1.3. Return on investment ................................................................................................. 70
6.7.1.4. Results of market investigation.................................................................................. 71
6.7.1.5. Lack of MVNOs......................................................................................................... 71
6.7.1.6. Conclusion.................................................................................................................. 72
6.7.2. Countervailing buyer power....................................................................................... 73
6.8. Anticipated effect of the proposed transaction on prices in the post-paid phone seg-
ment (voice and data)................................................................................................. 73
6.8.1. Post-paid private segment (voice and data) ............................................................... 74
6.8.1.1. UPP analysis............................................................................................................... 74
6.8.1.2. Arguments put forward by the Notifying Party ......................................................... 78
6.8.1.2.1. The UPP analysis on the post-paid segment ............................................................ 78
6.8.1.2.2. Appropriateness of the UPP framework................................................................... 78
EN 5 EN
6.8.1.2.3. SSNIP test objections ............................................................................................... 81
6.8.1.2.4. Correct UPP analysis application............................................................................. 82
6.8.1.2.5. Efficiencies and UPP analysis.................................................................................. 83
6.8.1.2.6. Predicted price increases .......................................................................................... 84
6.8.1.3. Conclusion.................................................................................................................. 84
6.8.2. Segment of data-only devices .................................................................................... 85
6.8.3. Conclusions................................................................................................................ 85
6.9. Reaction by other competitors post-merger ............................................................... 86
6.9.1. MNOs......................................................................................................................... 86
6.9.2. Other service providers (MVNO) .............................................................................. 89
6.10. Framework of analysis as regards the competitive constraint due to Orange in the
absence of the merger................................................................................................. 90
6.10.1. The view of the Notifying Party................................................................................. 91
6.10.2. The Commission's assessment ................................................................................... 92
6.10.2.1.Absence of a failing firm defence .............................................................................. 92
6.10.2.2.Development of Orange's market share ..................................................................... 92
6.10.2.3.Further current indicators of Orange's competitive position...................................... 92
6.10.2.4.Orange's plans in the absence of the merger .............................................................. 93
6.10.3. Conclusion.................................................................................................................. 94
6.11. Conclusions on non-coordinated effects .................................................................... 94
7. EFFICIENCIES.......................................................................................................... 95
7.1. Capacity increase ....................................................................................................... 96
7.1.1. Verifiability................................................................................................................ 96
7.1.2. Merger specificity ...................................................................................................... 97
7.1.3. Benefit to consumers.................................................................................................. 99
7.2. Faster LTE rollout.................................................................................................... 100
7.2.1. Verifiability.............................................................................................................. 100
7.2.2. Merger specificity .................................................................................................... 100
7.2.3. Benefits to consumers .............................................................................................. 100
7.3. Improved network coverage..................................................................................... 100
7.4. Reduction of alleged scale disadvantages ................................................................ 101
7.5. Conclusion................................................................................................................ 102
8. COORDINATED EFFECTS ................................................................................... 102
9. OTHER MARKETS ................................................................................................ 103
9.1. Wholesale access and call origination on public mobile telephone networks ......... 103
9.2. Wholesale market for international roaming............................................................ 104
EN 6 EN
9.3. Wholesale market for mobile call termination......................................................... 105
10. The Views of Interested Third Parties ..................................................................... 107
10.1. T-Mobile Austria...................................................................................................... 107
10.2. Tele2......................................................................................................................... 108
11. GENERAL CONCLUSION OF THE COMPETITIVE ASSESSMENT IN THE
RELEVANT MARKETS......................................................................................... 108
12. COMMITMENTS SUBMITTED BY THE NOTIFYING PARTY........................ 109
12.1. Procedure.................................................................................................................. 109
12.2. Description of the First Commitments..................................................................... 109
12.3. Assessment of the First Commitments..................................................................... 111
12.4. Description of the Final Commitments.................................................................... 112
12.4.1. Commitment to enter into an Upfront MVNO Agreement...................................... 113
12.4.2. Commitment to make wholesale access available ................................................... 113
12.4.3. Commitment to divest spectrum and additional rights ............................................ 114
12.4.4. The Resolution of the Austrian Telecom Regulator Telekom-Control-Kommission
(TKK) of 22 October 2012 ("Beschluss")................................................................ 116
12.5. Assessment of the Final Commitments.................................................................... 116
13. CONDITIONS AND OBLIGATIONS.................................................................... 119
COMMISSION DECISION
of 12.12.2012
addressed to:
Hutchison 3G Austria Holdings GmbH
declaring a concentration to be compatible with the internal market and the
EEA agreement
(Case No M.6497 – HUTCHISON 3G AUSTRIA / ORANGE AUSTRIA)
(Text with EEA relevance)
(Only the English text is authentic.)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to the Agreement on the European Economic Area, and in particular
Article 57 thereof,
Having regard to Council Regulation (EC) No 139/2004 of 20 January 2004 on the
control of concentrations between undertakings,
1
and in particular Article 8(2) thereof,
Having regard to the Commission's decision of 28 June 2012 to initiate proceedings in
this case,
Having given the undertakings concerned the opportunity to make known their views
on the objections raised by the Commission,
Having regard to the opinion of the Advisory Committee on Concentrations,
2
Having regard to the final report of the Hearing Officer in this case,
3
WHEREAS:
1. THE PARTIES
(1) On 7 May 2012, the Commission received a notification of a proposed con-
centration pursuant to Article 4 of Regulation (EC) No 139/2004 (the "Mer-
ger Regulation") by which the undertaking Hutchison 3G Austria Holdings
GmbH ("H3G Austria Holdings", Austria) (the "Notifying Party"), the parent
1
OJ L 24, 29.1.2004, p. 1 ("the Merger Regulation"). With effect from 1 December 2009, the
Treaty on the Functioning of the European Union ("TFEU") has introduced certain changes,
such as the replacement of "Community" by "Union" and "common market" by "internal mar-
ket". The terminology of the TFEU will be used throughout this Decision.
2
OJ C ...,...200. , p....
3
OJ C ...,...200. , p....
8
company of Hutchison 3G Austria GmbH ("H3G", Austria) and an indirect
wholly owned subsidiary of Hutchison Whampoa Limited ("HWL", Hong
Kong), acquires within the meaning of Article 3(1)(b) of the Merger Regula-
tion control of Styrol Holding 1 GmbH ("Styrol", Austria) and its indirect
wholly owned subsidiary Orange Austria Telecommunications GmbH ("Or-
ange", Austria), excluding Yesss! Telekommunikation GmbH ("Yesss!"), by
way of purchase of shares (together "the Parties").
(2) HWL is a multi-national conglomerate headquartered in Hong Kong. The
operations of HWL and of its associated companies consist of six core busi-
nesses: ports and related services, property and hotels, retail, energy, infra-
structure; and telecommunications. In the European Union, subsidiaries of
HWL include mobile network operators in Austria, Denmark, Ireland, Italy,
Sweden, and the United Kingdom.
(3) H3G is a mobile network operator (MNO) active in Austria under the brand
name "3" and wholly owned by HWL.
(4) Orange is an Austrian MNO. Orange and its parent company Styrol are cur-
rently owned by Stubai S.C.A. ("Stubai"), a wholly-owned subsidiary of the
private equity investment fund Mid Europa Partners ("MEP"), and Orange
Belgium S.A., a wholly-owned subsidiary of France Télécom S.A. Yesss!
Telekommunikation GmbH is a fully-owned subsidiary of Orange.
2. THE CONCENTRATION
(5) On 2 February 2012, H3G Austria Holdings, on the one hand, and Stubai and
Orange Belgium S.A., on the other hand, entered into an agreement for the
sale and transfer of the share capital of Styrol, the indirect owner of 100% of
the share capital of Orange (the "Proposed Transaction"). Since H3G Austria
Holdings will immediately sell Yesss! to Telekom Austria AG ("TA"),
4
there
will be no effective concentration of economic power between H3G and Or-
ange as a whole including Yesss!.
5
The onward sale of Yesss! therefore con-
stitutes a separate transaction for merger control purposes.
(6) As a result of the Proposed Transaction, Orange (excluding Yesss!)
6
will be
solely controlled by H3G Austria Holdings. The operation therefore consti-
tutes a concentration within the meaning of Article 3(1)(b) of the Merger
Regulation.
(7) Two further transactions are conditional on the Proposed Transaction but
separate from it for the purposes of applying the Merger Regulation since
4
See paragraph (8) and following.
5
See paragraph 32 of the Commission Consolidated Jurisdictional Notice under Council Regu-
lation (EC) No 139/2004 on the control of concentrations between undertakings, OJ C 95
16.4.2008, p. 1. (the "Consolidated Jurisdictional Notice").
6
In the remainder of this Decision "Orange" shall refer to Orange only, excluding Yesss!, un-
less otherwise stated.
9
control of the assets concerned is acquired by an undertaking other than
H3G.
7
2.1. The acquisition of Yesss! by TA
(8) Firstly, H3G will immediately sell-on Yesss!, in a back-to-back operation,to
TA, the telecoms incumbent which owns the mobile market leader A1 (the
Yesss! Acquisition). Yesss! is a "no frills" mobile virtual network operator
(MVNO) currently fully-owned by Orange and providing services on its
network.
(9) Although the sell-on of Yesss! constitutes a separate concentration as the
Yesss! Acquisition involves the ultimate acquisition of control by a separate
undertaking, TA, both concentrations, H3G / Orange and TA / Yesss!, are in-
ter-conditional. Completion of the H3G / Orange transaction is conditional
upon the fulfilment of all conditions agreed between H3G Austria Holdings
and TA in relation to the Yesss! Acquisition. One of these conditions is prior
merger control clearance of the Proposed Transaction.
(10) The Yesss! Acquisition was notified to the Bundeswettbewerbsbehörde
("BWB") on 31 May 2012 which requested the Austrian Cartel Court ("Ober-
landesgericht Wien als Kartellgericht erster Instanz") to open proceedings on
28 June 2012. The concentration subject to Union jurisdiction is the acquisi-
tion of Orange Austria (minus the "Yesss!" business) by H3G.
2.2. Acquisition of Orange assets by TA from H3G
(11) Secondly, TA will acquire from H3G certain sites, spectrum frequencies and
intellectual property rights currently owned by Orange ("TA spectrum deal").
According to the Notifying Party, the transfer of frequencies must be ap-
proved by the Austrian Telecommunications Regulator ("Rundfunk & Tele-
kom Regulierungs-GmbH" ("RTR") and "Telekom-Control Kommission"
("TKK")).
3. UNION
DIMENSION
(12) The undertakings concerned have a combined aggregate worldwide turnover
of more than EUR 5 000 million (HWL: EUR 26 597; Orange: EUR 485.1).
8
Each of them has a Union-wide turnover in excess of EUR 250 million
(HWL: EUR […]*; Orange: EUR […]*). Even though Orange is active in
Austria only, HWL does not achieve more than two-thirds of its aggregate
Union-wide turnover within one and the same Member State. The Proposed
Transaction therefore has a Union dimension.
7
See paragraph 41 of the Consolidated Jurisdictional Notice.
8
Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Com-
mission Consolidated Jurisdictional Notice.
* Parts of this text have been edited to ensure that confidential information is not disclosed;
those parts are enclosed in square brackets and marked with an asterisk.
10
4. PROCEDURE
4.1. General procedure
(13) Based on a market investigation, the Commission raised serious doubts as to
the compatibility of the Proposed Transaction with the internal market and
adopted a decision to initiate proceedings pursuant to Article 6(1)(c) of the
Merger Regulation on 28 June 2012 ("the Article 6(1)(c) decision").
(14) On 29 June 2012 the Commission held a state of play meeting where, at the
request of the Notifying Party, some minimum requirements for a possible
remedy solution were discussed with the Notifying Party.
(15) The Notifying Party submitted written comments in response to the Article
6(1)(c) decision on 11 September 2012.
(16) During the second phase investigation, the Commission sent several requests
for information to the Notifying Party and to Orange, in particular the re-
quests of 4 July 2012, 13 July 2012 and 27 July 2012. It also sent a request
for information to the Notifying Party alone on 20 July 2012. The Notifying
Party and Orange both responded to those requests.
(17) From 1 July to 19 July 2012 the Commission also sent requests for informa-
tion to several competitors of the notifying party and potential (MVNO)
market entrants.
(18) On 30 July 2012, the Commission adopted a decision pursuant to Article
10(3), second subparagraph, third sentence to extend the procedure by a total
of 15 working days with the agreement of the Notifying Party. Accordingly,
the legal deadline for the Commission to adopt a decision pursuant to Article
8(1), (2) or (3) of the Merger Regulation was extended to 27 November
2012.
(19) On 28 August 2012 the Commission adopted a decision pursuant to Article
10(3) second subparagraph, third sentence to extend the procedure by a total
of 3 working days with the agreement of the Notifying Party. Accordingly,
the legal deadline for the Commission to adopt a decision pursuant to Article
8(1), (2) or (3) of the Merger Regulation was extended until 30 November
2012.
(20) On 20 September 2012 the Commission sent a Statement of Objections ("the
SO") to the Notifying Party under Article 18 of the Merger Regulation.
(21) On 5 October 2012 the Notifying Party submitted its response to the SO.
Orange commented on the SO on 4 October 2012.
(22) On 10 October 2012, the Commission's Hearing Officer afforded the Notify-
ing Party the opportunity to make itself heard in an oral hearing. Following
their requests, T-Mobile Austria ("T-Mobile") and Tele2 as well as UPC
(Liberty Global) were admitted as interested third parties to the Oral Hearing.
11
4.2. Referral Request
(23) On 29 May 2012, the BWB requested, on the basis of Article 9(2)(a) of the
Merger Regulation, a referral of the Proposed Transaction from the Commis-
sion to Austria (the "Referral Request").
9
(24) In the Referral Request, the BWB asserted that the Proposed Transaction
threatened to significantly affect competition in the Austrian telecommunica-
tions market which presented all the characteristics of distinct markets in ac-
cordance with Article 9(2)(a). According to the BWB's assessment, the Pro-
posed Transaction threatened to affect competition in two ways.
(25) The BWB's first concern relates to the loss of a competitor in an already
highly concentrated market. The reduction from four to three MNOs might
therefore reduce competitive pressure. In the BWB's view, H3G and Orange
are also price leaders. Thus Orange's disappearance might also lead to a
change of incentives for H3G to act less price-aggressively.
(26) Furthermore, the BWB is of the opinion that there are already indications of
coordination in the market. In its view, the market structure after the merger
would increase the potential for collusive behaviour while new market en-
tries would be unlikely.
(27) The BWB did not send any reminder pursuant to Article 9(5) of the Merger
Regulation after the Commission adopted the Article 6(1)(c) decision on 28
July 2012. The Commission therefore decided to deal with the aspects raised
by the Austrian competition authority itself pursuant to Article 9(3)(a) of the
Merger Regulation.
5. RELEVANT MARKETS
5.1. Introduction
(28) In previous Commission decisions
10
the mobile telecommunications services
product markets have been defined as follows:
11
9
See Doc ID1863.
10
See Case No COMP/M.5650 – T-Mobile/Orange; Commission Decision of 27 November
2007 in Case No COMP/M.4947 – Vodafone/Tele2 Italy/Tele2 Spain, OJ C 300, 12.12.2007,
p. 4; Commission Decision 2007/193/EC of 26 April 2006 in Case No COMP/ M.3916 – T-
Mobile Austria/Tele.ring, OJ L 88, 29.3.2007, p. 44; Commission Decision of 24 September
2004 in Case No COMP/ M.3530 – TeliaSonera/Orange, OJ C 263, 26.10.2004, p. 7; and
Commission Decision of 16 September 2003 in Case No COMP/M.3245 – Voda-
fone/Singlepoint, OJ C 242, 9.10.2003, p. 5.
11
See also, to the extent relevant, the Commission's Recommendations of 11 February 2003 and
17 December 2007 on Relevant Product and Service Markets within the electronic communi-
cations sector: Commission Recommendation of 11 February 2003 on Relevant Product and
Service Markets within the electronic communication networks and services, OJ L 114,
8.5.2003, p. 45; Commission Recommendation (2007/879/EC) of 17 December 2007 on rele-
vant product and service markets within the electronic communications sector susceptible to
ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and
of the Council on a common regulatory framework for electronic communications networks
and services, OJ L 344, 28.12.2007, p. 65.
12
(a) mobile telecommunications services to end customers (retail mobile
telecommunications services market);
(b) wholesale access and call origination on public mobile telephone net-
works;
(c) wholesale market for international roaming; and
(d) wholesale market for mobile call termination
(29) The activities of H3G and Orange would, on this basis, overlap in the market
for mobile telecommunications services to end customers. The Parties are al-
so potential competitors on the market for wholesale access and call origina-
tion on public mobile telephone networks. There is also a link between the
activities of H3G and Orange on the wholesale market for international
roaming and the wholesale market for mobile call termination.
5.2. Product markets
5.2.1. Mobile telecommunications services to end customers
(30) The Notifying Party notes that, in previous decisions, the Commission did
not further subdivide the market for the provision of mobile telecommunica-
tions services to end customers by type of customer (corporate or private,
post-paid subscribers or pre-paid customers) or by type of network technol-
ogy (2G/GSM or 3G/UMTS). The Commission therefore assessed previous
cases on the basis of an overall market for the provision of mobile telecom-
munications services to end customers.
12
The Notifying Party argues that a
similar approach should be adopted in this case.
(31) In Sections 5.2.1.1 to 5.2.1.6, the Commission considers whether for the pur-
poses of this case it is necessary to further subdivide the market for mobile
telecommunications services to end customers.
5.2.1.1. Private and business customers
5.2.1.1.1. The view of the Notifying Party
(32) As regards the possible sub-segmentation of the market for mobile telecom-
munications to end customers depending on the type of customer, the Notify-
ing Party considers that the service provided to private and business custom-
ers is essentially the same and that there is supply side substitutability by
network operators.
5.2.1.1.2. The Commission's assessment
(33) In previous decisions, the Commission did not subdivide the market between
private and business customers.
13
In Case M.5650 – T-Mobile/Orange, the
12
See Case No COMP/M.5650 – T-Mobile/Orange; Case No COMP/M.4947 – Vodafone/Tele2
Italy/Tele2 Spain; Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring; Case No COMP/
M.3530 – TeliaSonera/Orange; Case No COMP/M.3245 – Vodafone/Singlepoint.
13
See Case No COMP/M.5650 – T-Mobile/Orange; Case No COMP/ M.3916 – T-Mobile Aus-
tria/Tele.ring.
13
Commission found that although business customers were considered "heavy
users" as opposed to private customers who use mobile telecommunications
more scarcely, the service offered was substantially the same as that offered
to private customers.
(34) In the light of the responses to the market investigation, nonetheless, the
Commission notes that there might be distinct demand as between private
and business customers. Business customers have, to some degree, different
needs from private customers, can easily be identified and are therefore tar-
geted with specific offers. Certain larger customers might even be offered
tailor-made tariff plans and additional services. Whilst some business cus-
tomers did suggest that they might switch to residential tariffs in the event
that there were to be a small but significant non-transitory increase in the
price of business services, the majority indicated that they would not do
so.
14,15
Any such substitutability as there might be would, moreover, operate
only in one direction, since private customers could not switch to business
tariffs.
(35) Therefore, the Commission considers that due to supply side considerations
there is an overall product market for private and business customers as re-
gards mobile telecommunications services to end customers.
16
5.2.1.2. Pre-paid and post-paid services
5.2.1.2.1. The view of the Notifying Party
(36) As regards a possible distinction between pre-paid and post-paid services, the
Notifying Party submits that the line is becoming increasingly blurred as hy-
brid products, such as pre-paid customers paying by way of a debit order and
post-paid customers paying by way of a pre-paid card are becoming more
important. Moreover, there is an increasing number of offers under which
post-paid customer are not bound to any commitment period.
(37) As regards supply side substitution, the Notifying Party submits that now all
MNOs are active in both the pre-paid and the post-paid segment.
14
Responses to Commission questionnaire 2 to Business Customers and Consumer Associa-
tions, Doc ID 508.
15
Consumer association's response to Commission questionnaire 2 to Business Customers and
Consumer Associations, Doc ID 508; the questions were worded as follows: "In the Austrian
retail market for mobile telephony, do you consider that the services offered to pri-
vate/residential post-paid
customers and business customers are different?" and "Would your
company / consumers switch from a business tariff to a private / residential customer tariff
, if
the price of all available business tariffs increased on a non-temporary basis by 5–10% while
prices of private / residential tariffs would remain constant?"
16
This does not necessarily imply that supply-side substitution is capable in this case of exercis-
ing a competitive constraint between the two segments. As further argued in the competitive
assessment (Section 6), the Commission considers that this is not the case.
14
5.2.1.2.2. The Commission's assessment
(38) The Commission has previously found that the distinction between the two
segments is becoming blurred due to the development of different types of
offers.
17
(39) In the light of the responses to the market investigation, the Commission
considers that there are also some arguments in support of this position in
this case, at least as regards retail customers (for large business customers
pre-paid offers do not generally appear to be suitable). One consumer asso-
ciation noted that regardless of whether an offer was pre-paid or post-paid,
"[f]rom consumers' point of view the lower offer is more attractive."
18
Fur-
thermore it may be that some forms of pre-paid in fact allow for automatic
top-up and in this respect are more similar to post-paid. On the other hand,
for occasional use (by children, non-residents, etc.) post-paid would seem
less suitable as an alternative, whilst pre-paid may be less suitable for inten-
sive use and international roaming.
(40) The availability of handset promotions is also different between the two
segments. Post-paid services have, until now, in the Austrian market, often
been characterised by subsidised prices for handsets which are then offset
against the revenues obtained by operators during the period (typically 24
months) in which customers are contractually locked into a given plan. Pre-
paid services (and certain post-paid services like bob
19
which lack this char-
acteristic) can be cancelled at any moment or use can simply cease, at which
point no further payments are necessary.
(41) The Commission's conclusion is that pre-paid and post-paid are part of the
same market, at least in view of supply-side substitution. At the same time,
there is a distinct segment of demand which is often targeted by pre-paid of-
fers where the user concerned makes infrequent calls but may themselves be
called more frequently. The interaction between the pre-paid and post-paid
segments will further be considered in the competitive assessment.
5.2.1.3. Type of Technology (2G, 3G and Future 4G Technologies)
5.2.1.3.1. The view of the Notifying Party
(42) The Notifying Party proposes that in this case it would also be inappropriate
to draw a distinction based on the generation of network technology. It sub-
mits that to date, more than half of the SIM cards in Austria are already 3G
cards. There are no new 2G-only offers on the market anymore. Further, cus-
17
See Case No COMP/M.5650 – T-Mobile/Orange; Case No COMP/ M.3916 – T-Mobile Aus-
tria/Tele.ring.
18
Consumer association's response to Commission questionnaire 2 to Business Customers and
Consumer Associations, Doc ID 508; the question was worded as follows: "Would your com-
pany / consumers switch from post-paid / pay monthly services to pre-paid / pay-as-you-go
subscription, if the price of all available post-paid services increased on a non-temporary basis
by 5–10% while prices of pre-paid would remain constant?"
19
See Recital (110).
15
tomers cannot distinguish a voice call received on a 2G or a 3G network.
Therefore, in its view, a subdivision of the mobile end-customer market by
type of network technology is not appropriate.
5.2.1.3.2. The Commission's assessment
(43) In previous decisions the Commission considered that there was a single
market for the provision of mobile telecommunications services to end cus-
tomers, in so far as they could be provided on both a 2G and a 3G basis.
20
Even though voice telecommunications and data services, such as text mes-
saging, access to e-mail services or general Internet access, can be provided
on 2G or 3G networks, 2G networks provide a much lower speed. Other ser-
vices, such as video telecommunications, mobile TV or other multimedia
services, require the faster transmission speed which only a 3G network can
provide. On the other hand, access to each of these technology layers is a
function of the generation of handset which the end-user possesses, since us-
ers of 2G-only handsets cannot access 3G and a fortiori LTE
21
services.
(44) In the light of the responses to the market investigation the Commission con-
siders that the subdivision of the mobile end-customer market by type of
network technology is not appropriate.
22
For instance, the vast majority of
market participants argued that, for them, a change to LTE was not important
and that they were not willing to pay a premium for LTE technology.
23
Fur-
thermore, one consumer organisation noted that "consumers do not differen-
tiate based on technology but only with regard to their own needs. Even after
the introduction of UMTS, there have been no specific UMTS tariffs. […]
However customers will be ready to pay for more data volume if needed (as
they already do)."
24
Moreover, in terms of coverage, LTE is expected to be
20
See Case No COMP/M.5650 – T-Mobile/Orange, paragraph 24; Case No COMP/ M.3916 –
T-Mobile Austria/Tele.ring, paragraph 18.
21
LTE stands for Long Term Evolution, marketed as 4G LTE. The technology is a standard for
wireless communication of high-speed data for mobile phones and data terminals.
22
See responses to Commission questionnaires 1 to Competitors, Doc ID 496; 2 to Business
Customers and Consumer associations, Doc ID 508; 3 to Distributors and Resellers, Doc ID
498; 4 to Network Operators outside Austria (MNOs and MVNOs), Doc ID 372; the question
was worded as follows: "In the cases M.3916 – T-Mobile Austria/tele.ring and M.5650 – T-
Mobile/Orange United Kingdom, the Commission concluded that there was an overall relevant
market for the provision of mobile telecommunications services to end customers and did not
further subdivide the market by […] technology (2G/GSM or 3G/UMTS networks). Do you
consider this holds today?"
23
See responses to Commission questionnaire 2 to Business Customers and Consumer associa-
tions, Doc ID 508; the questions were worded as follows: "How important would it be for
your company / consumers to switch to LTE?" and "Do you think that your company / con-
sumers would be prepared to pay a premium for LTE?"
24
Consumer association's response to Commission questionnaire 2 to Business Customers and
Consumer associations, Doc ID 508; the question was worded as follows: "Do you think that
your company / consumers would be prepared to pay a premium for LTE?" ("Konsument[en]
differenzieren nicht nach Technologie, sondern nach deren Bedürfnissen. Auch nach der Ein-
führung von UMTS sind keine eigenen UMTS-Tarife entstanden. Es ist nicht zu erwarten,
16
complemented by 3G.
25
It is also important to note that LTE in Austria is not
yet ready to be used for voice traffic and such a development is not expected
before 2015; therefore voice traffic will need for the time being to fall back
on the legacy 2G and 3G technology layers.
(45) Notwithstanding this, there are clear performance differences for data traffic
over 2G, 3G and LTE networks, the importance of which to a given user will
vary depending on that user's pattern of use. The Notifying Party is aware of
the importance of network quality to users, particularly data-intensive users,
and seeks to differentiate its service offering on this basis. For the moment,
however, such commercial differentiation does not foreclose use of the latest
available network technology layer to users with devices supporting access to
that layer, and therefore a distinction for market definition purposes appears
superfluous.
(46) The Commission therefore considers that in view of the limited customer
differentiation between different types of technology and the fact that all
MNOs offer a combination of mobile services over both 2G and 3G net-
works, there are at present no distinct product markets for different types of
network services.
5.2.1.4. Voice telecommunications and data services
(47) Voice telecommunications and data services, such as access to email services
or general Internet services, are often provided together as a bundled tariff
plan offering. With the introduction of smartphones, a wide variety of data
intensive applications has emerged through the use of mobile handsets. On
the other hand, data consumption also takes place on a standalone basis, sep-
arate from voice services, through mobile broadband dongles, 3G/4G enabled
tablets or mobile 3G/4G routers.
5.2.1.4.1. The view of the Notifying Party
(48) In relation to the different services provided over the mobile network (voice,
SMS and data), the Notifying Party agrees with the Commission's previous
practice, based on the definition of a single mobile telecommunications ser-
vices market.
5.2.1.4.2. The Commission's assessment
(49) The Commission has considered whether there is an overall market for all
mobile retail services which would encompass both voice and data services.
Alternatively, the Commission considered whether the market should be
subdivided into a market for voice retail mobile services and data retail mo-
bile services. This latter market would include both mobile broadband over
dass es eigene LTE-Tarife geben wird, allerdings werden die Konsument[en] bei Bedarf bereit
sein, für mehr Datenvolumen zu zahlen (wie jetzt auch schon).".)
25
See MNO's response to Commission questionnaire 4 to Network Operators outside Austria
(MNOs and MVNOs), Doc ID 372; the question was worded as follows: 21.1 "How long do
you expect the LTE technology cycle to last? What do you con-sider to be the time horizon for
LTE revenues?"
17
smartphones and over data-only devices. Finally, as another alternative, the
Commission considered whether voice and mobile broadband over voice-
enabled devices belong in one market and mobile broadband over data-only
devices forms a distinct market.
(50) Voice and mobile broadband over smartphones are commonly acquired to-
gether in a bundle and used over the same mobile handset, which is often
provided at a subsidised price as part of the bundled offering, whereas mobile
broadband over data-only devices is purchased and consumed independently
of any voice services. In the light of the market investigation, the Commis-
sion has confirmed the increasing importance of and demand for data ser-
vices as well as the decrease in voice only offers (without data). A vast ma-
jority of the participants in the market investigation considers that (except for
data-only devices) data and voice are usually purchased in a bundle. Some
respondents even considered "voice only [as] not relevant anymore".
26
A
significant number of respondents highlighted that such combinations were
required for smartphones.
(51) Notable exceptions to bundled services of voice and data were dongles, tab-
lets and 3G/4G mobile routers which use data only services only.
27
Such de-
vices do not necessarily support voice traffic (other than through Voice over
Internet Protocol (VoIP)). Moreover, the market penetration of data-only de-
vices is increasing, making it more attractive to devise tariff plans specifi-
cally suited to mobile broadband over data-only devices and indeed in some
cases to offer such plans in a bundle with a device of the type in question.
This fact is not altered by the consideration, put forward by the Notifying
Party, that all SIM cards in Austria are technically capable of offering all
services, since the accompanying tariff plans incentivise one type of use (in a
data-only device) or the other (in a voice-enabled device, that is to say a
phone).
(52) It follows that, from a demand perspective, services designed for use on a
voice-enabled device are distinguished from services designed for use on a
data-only device. However, the Commission considers that due to supply-
side considerations and notably the fact that all providers (or at least all
MNOs) offer both types of service, it is not appropriate to depart from its
previous practice of defining a single market including all services provided
whether for data-only devices or for voice-enabled devices.
26
Business customer's response to the Commission questionnaire 2 to Business Customers and
Consumer Associations, Doc ID 508; the question was worded as follows: "Do you think that
data and voice are usually purchased together in a bundle or separately?"
27
Responses to Commission questionnaire 2 to Business Customers and Consumer associations,
Doc ID 508; the question was worded as follows: "Does your company / Do consumers pur-
chase mobile broadband services (whether 2G or 3G) in Austria in conjunction with voice ser-
vices or separately?"
18
5.2.1.5. Fixed and mobile data services
5.2.1.5.1. The view of the Notifying Party
(53) The Notifying Party argues that mobile data services increasingly offer a
substitute to traditional fixed line internet services. There is evidence that
mobile broadband may provide an effective alternative to fixed line services
for many Austrian residential customers. The Notifying Party considers,
however, that a number of differences between the product offerings suggest
that fixed line services are not fully substitutable with mobile data services
and that substitution may be limited to certain types of internet use (such as
residential use). Thus the Notifying Party believes that it is premature to de-
cide on whether mobile data services and fixed internet services are part of a
single product market.
5.2.1.5.2. The Commission's assessment
(54) The RTR/TKK in its Telecommunications Markets Ordinance has found that
mobile broadband access by residential customers is a substitute for fixed
line internet services.
28
The Commission does not dispute this finding in rela-
tion to Austria.
(55) However, for the assessment in this case, the question is the reverse, namely
not whether fixed broadband is substitutable with mobile but whether fixed
broadband services are a substitute for mobile data services in general or for
mobile broadband specifically. The Ordinance does not cover this question.
(56) The results of the market investigation have shown that there is only limited
substitutability for mobile data services by fixed broadband.
29
Mobile data
services delivered on a smartphone in a bundle with voice services could not
be fully substituted by fixed broadband in terms of their type of use (that is to
say, in a mobile handset device). Most importantly, there is limited substitut-
ability between mobile data over dongles, tablets, etc. and fixed broadband
because of the restriction in mobility. Only mobile data services offer cus-
tomers the possibility to access the internet universally whilst on the move.
Customers for whom mobility is important (including in locations where Wi-
Fi is unavailable or less satisfactory) would not consider fixed line services
as an alternative.
30
Some respondents to the market investigation consider
28
See Novelle der TKMVO 2003 samt erläuternden Bemerkungen – "Breitbandmarktdefini-
tionsverordnung", Federal Law Gazette ("Bundesgesetzblatt") II Nr 38/2005 of 29.4.2005; 2.
Novelle der TKMV 2008 samt erläuternden Bemerkungen", available at
http://www.rtr.at/de/tk/TKMV2008
(retrieved 31 October 2012).
29
MNOs' response to Commission questionnaire 1 to Competitors Doc ID 496; the question was
worded as follows: 72 "Do you consider that, in Austria, retail fixed broadband services are
exercising competitive constraints on retail mobile broadband services?"
30
Whilst in certain countries there are relatively dense urban public wifi subscription networks,
raising at least the possibility of substitution for certain users, this is not the case in Austria.
19
that mobile broadband is "indispensable for mobile devices, because users
want to be independent from fixed broadband".
31
(57) In the light of the foregoing the Commission considers that fixed broadband
services are not a substitute for mobile data services and therefore do not
form part of the same product market.
5.2.1.6. Conclusion
(58) For the purpose of this decision, the Commission considers that there is a
single market in Austria for the provision of mobile telecommunications ser-
vices to end customers.
5.2.2. Wholesale market for access and call origination on public mobile telephone
networks
(59) Wholesale network access is provided by MNOs to MVNOs. This includes
the provision of a range of wholesale telecommunications services on a mo-
bile telephone network for the purpose of providing retail mobile telecom-
munications services to end customers. These services include wholesale
network access and call origination, call termination and international roam-
ing, whether for voice, SMS or data services. The wholesale market for these
services is therefore (i) on the supply-side, the MNOs who own their mobile
networks and (ii) on the demand-side, the MVNOs who seek access to the
MNO network in order to provide their retail services.
32
5.2.2.1. The view of the Notifying Party
(60) The Notifying Party agrees with the Commission's approach in previous cas-
es and submits that the Proposed Transaction should be assessed on the basis
that there is a market for network access and call origination on public mo-
bile telephone networks.
5.2.2.2. The Commission's assessment
(61) In previous decisions, the Commission considered wholesale network access
and call origination to be part of the same product market. It noted that
wholesale network access and call origination were key elements required to
provide retail mobile telecommunications services. These elements were typ-
ically supplied together by an MNO, hence both services could be considered
as part of the same market.
33
31
Business Customer's response to Commission questionnaire 2 to Business Customers and
Consumer Associations Doc ID 508; the question was worded as follows: "To what extent is
mobile broadband access an existing or rapidly emerging alternative to fixed broadband inter-
net access?"
32
Commission Decision of 20 August 2007 in Case No COMP/M.4748 – T-Mobile/Orange
Netherlands, OJ C 243, 17.10.2007, p. 1, paragraph 17; Commission Decision of 1 March
2010 in Case No COMP/M.5650 – T-Mobile/Orange, OJ C 108, 28.4.2010, p. 4, paragraph
28.
33
See Case No COMP/M.5650 – T-Mobile/Orange, paragraph 27; Case No COMP/M.4947 –
Vodafone/Tele2 Italy/Tele2 Spain, paragraph 15.
20
(62) In the market investigation, market participants unanimously affirmed that
this approach is also appropriate in this case.
5.2.2.3. Conclusion
(63) In view of the foregoing, the Commission considers that there is a distinct
wholesale market for access and call origination on public mobile telephone
networks in Austria.
5.2.3. Wholesale market for international roaming
(64) International roaming is a service which allows mobile subscribers to use
their mobile handsets and SIM cards to make and receive calls, to send and
receive text messages and to use other data services when abroad. In order to
be able to offer this service to their customers, MNOs conclude wholesale
agreements with one another providing access and capacity on mobile net-
works in the foreign country.
34
(65) Demand for wholesale international roaming services comes first from for-
eign mobile operators who wish to provide their own customers with mobile
services outside their own network and, downstream, from subscribers wish-
ing to use their mobile telephones outside their own countries.
(66) Roaming agreements can be concluded with a preferred foreign operator
which offers specific conditions, as can be seen in particular in the creation
of international roaming alliances such as the Freemove Alliance or the Vo-
dafone partners.
(67) Therefore the Commission concludes that there is a separate wholesale mar-
ket for international roaming.
5.2.4. Wholesale market for mobile call termination.
(68) Call termination is the service provided by network operator B to network
operator A whereby a call originating in operator A's network is delivered to
the user in operator B's network. Call termination thus allows users of differ-
ent networks to communicate with one another. Call termination is a whole-
sale service which the various network operators provide one another on the
basis of interconnection agreements, upstream of the provision of telecom-
munications services to end customers.
35
(69) As established in previous Commission decisions,
36
there is no substitute for
call termination on each individual network since the operator transmitting
the outgoing call can reach the intended recipient only through the operator
34
See Case No COMP/M.5650 – T-Mobile/Orange, paragraph 32.
35
See Case No COMP/M.5650 – T-Mobile/Orange, paragraph 36.
36
See Commission Decision 2001/98/EC of 13 October 1999 in Case No IV/M.1439 – Te-
lia/Telenor, OJ L 40, 9.2.2001, p. 1; Commission Decision of 10 July 2002 in Case No
COMP/ M.2803 – Telia/Sonera, OJ C 201, 24.8.2002, p. 19 and Commission Decision of 10
June 2005 in Case No COMP/M.3806 – Télefonica/ Cesky Telecom, OJ C 156, 28.6.2005, p.
3. See also Revised Commission Recommendation of 17 December 2007 referring to whole-
sale voice call termination on individual mobile networks.
21
of the network to which the recipient is connected. Each individual network
therefore constitutes a separate market for termination. This applies both to
fixed networks and to mobile networks.
37
(70) Therefore the Commission concludes that there is a separate wholesale mar-
ket for mobile call termination.
5.3. Geographic markets
5.3.1. Mobile telecommunications services to end customers
(71) The Notifying Party suggests defining the relevant geographic market for the
market for mobile telecommunications services to end customers, in line with
previous Commission decisions,
38
as national in scope.
(72) In the market investigation the vast majority of respondents considered the
relevant geographic markets to be national, that is to say, limited to the terri-
tory of Austria but no smaller.
39
There appears to be no relevant commercial
practice or ability to discriminate between users on the basis of their location
within the Austrian territory.
(73) In view of the foregoing, the Commission concludes that in this case the mar-
ket for mobile telecommunications services to end customers is national in
scope (that is to say, Austria).
5.3.2. Wholesale access and call origination on public mobile telephone networks
(74) The Notifying Party likewise suggests defining the relevant geographic mar-
ket for the market for wholesale access and call origination on public mobile
telephone networks, in line with previous Commission decisions,
40
as na-
tional in scope.
(75) In its previous decisions the Commission defined the geographic scope of the
product market for wholesale access and call origination on public mobile
telephone networks as national. This is due to regulatory barriers as the geo-
graphical scope of the licences granted to MNOs is in principle limited to ar-
37
See Commission Decision of 10 January 2006 in Case No COMP/M.4035– Téléfonica /O2,
OJ C 29, 4.2.2006, p. 14, paragraph 9 and following; Case No COMP/M.4947 – Voda-
fone/Tele2 Italy/Tele2 Spain, paragraph 13; Revised Commission Recommendation of 17 De-
cember 2007 referring to wholesale voice call termination on individual mobile networks, p.
24.
38
Case No COMP/M.5650 – T-Mobile/Orange; Case No COMP/M.4748 – T-Mobile/Orange
Netherlands; Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring.
39
Responses to Commission questionnaires 1 to Competitors, Doc ID 496; 2 to Business Cus-
tomers and Consumer Associations, Doc ID 508; 4 to Network Operators outside Austria
(MNOs and MVNOs) Doc ID 372; the question was worded as follows: "In the cases M.3916
– T-Mobile Austria / Tele.ring and M.5650 – T-Mobile / Orange United Kingdom, the Com-
mission concluded that the geographic market for mobile telecommunications services to end
customers should be defined in national terms (for example restricted to Austria). Do you con-
sider this holds today?"
40
Case No COMP/M.5650 – T-Mobile/Orange; Case No COMP/M.4748 – T-Mobile/Orange
Netherlands; Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring.
22
eas which do not extend beyond the borders of a Member State. Moreover,
the coverage of mobile networks tends to correspond to national borders,
with the result that the supply of access and origination at wholesale level is
national in scope.
(76) In the market investigation the vast majority of respondents confirmed the
relevant geographic markets to be national, that is to say, limited to the terri-
tory of Austria but no smaller.
41
(77) In view of the foregoing, the Commission concludes that in this case the mar-
ket for wholesale access and call origination on public mobile telephone net-
works is national in scope (that is to say, Austria).
5.3.3. Wholesale market for international roaming
(78) The Notifying Party suggests defining the relevant geographic scope of the
market for wholesale international roaming, in line with previous Commis-
sion decisions,
42
as national in scope. The Commission has based this view
on the fact that wholesale international roaming agreements can be con-
cluded only with companies which have an operating licence in the relevant
country and licences to provide mobile services are restricted to a national
territory. This was also confirmed in the market investigation.
43
(79) In view of the foregoing, the Commission concludes that in this case the
wholesale market for international roaming is national in scope (that is to
say, Austria).
5.3.4. Wholesale market for mobile call termination
(80) In line with the Commission's previous decisions,
44
the Notifying Party sub-
mits that the relevant geographic market for call termination in mobile (and
fixed) networks is national in scope, since the concrete size of the market
41
Responses to Commission questionnaires 1 to Competitors, Doc ID 496; 2 to Business Cus-
tomers and Consumer Associations, Doc ID 508; 4 to Network Operators outside Austria
(MNOs and MVNOs) Doc ID 372; the question was worded as follows: "In the cases M.3916
– T-Mobile Austria / Tele.ring and M.5650 – T-Mobile / Orange United Kingdom, the Com-
mission concluded that due to regulatory barriers, since the geographical scope of the licences
granted to MNOs is in principle limited to areas which do not extend beyond the borders of a
Member State, the geographic market for the provision of wholesale access and call origina-
tion on public mobile telephone networks is national. Do you consider this holds today?"
42
Case No COMP/M.5650 – T-Mobile/Orange; Case No COMP/M.4748 – T-Mobile/Orange
Netherlands; Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring.
43
Responses to Commission questionnaires 1 to Competitors, Doc ID 496; 2 to Business Cus-
tomers and Consumer Associations, Doc ID 508; 4 to Network Operators outside Austria
(MNOs and MVNOs) Doc ID 372; the question was worded as follows: "In the cases M.3916
– T-Mobile Austria / Tele.ring and M.5650 – T-Mobile / Orange United Kingdom, the Com-
mission concluded that the geographic market for the provision of international roaming is na-
tional, on the fact that wholesale international roaming agreements can be concluded only with
companies which have an operating licence in the relevant country and licences to provide
mobile services are restricted to the national territory. Do you consider this holds today?"
44
Case No COMP/M.5650 – T-Mobile/Orange; Case No COMP/M.4748 – T-Mobile/Orange
Netherlands; Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring.
23
corresponds to the geographic dimension of the network which, in general, is
limited to the national borders. This is essentially owing to regulatory barri-
ers as the geographic scope of the licences is in principle limited to areas
which do not extend beyond the borders of a Member State. This view was
confirmed by the results of the market investigation.
45
(81) In view of the foregoing, the Commission concludes that in this case the
wholesale market for mobile call termination is national in scope (that is to
say, Austria).
6. COMPETITIVE ASSESSMENT IN THE MARKET FOR MOBILE
TELECOMMUNICATION SERVICES TO END CUSTOMERS
(82) The following assessment focuses on the market for mobile telecommunica-
tions services to end customers.
6.1. Introduction
(83) The Proposed Transaction will bring together two of the four MNOs in Aus-
tria. H3G and Orange are, respectively, the fourth and third MNOs ranked by
market share size in the Austrian market for mobile telecommunications ser-
vices to end customers. Despite their lower market shares compared to the
other two MNOs, TA and T-Mobile, the Commission considers that the
transaction will lead to a significant impediment of effective competition.
(84) The market is already highly concentrated. The intended consolidation will
eliminate a fully-fledged competitor from the market and reduce the number
of market players from four to three. The competition concerns identified by
the Commission in this case are a consequence of four essential factors: the
market structure, the high diversion ratios between the Parties, the significant
margins which they realise, and the pre-merger importance of the Parties
with regard to the acquisition of new business.
46
The market structure means
that competition concerns would arise as a result of the Proposed Transaction
in particular owing to high barriers to entry, the absence of significant buyer
power and the existence on the part of competitors of an incentive to follow
price increases by the merged entity. Furthermore, the argument of the Noti-
fying Party according to which the competitive constraint posed by Orange in
the market is likely to deteriorate in the near to medium term cannot be ac-
cepted on the basis of the evidence.
45
Responses to Commission questionnaires 1 to Competitors, Doc ID 496; 2 to Business Cus-
tomers and Consumer Associations, Doc ID 508; 4 to Network Operators outside Austria
(MNOs and MVNOs) Doc ID 372; the question was worded as follows: "In the cases M.3916
– T-Mobile Austria / Tele.ring and M.5650 – T-Mobile / Orange, the Commission concluded
that the geographic markets for wholesale call termination are national, since they correspond
to the geographic dimension of the network which in general is limited to national borders. Do
you consider this holds today?"
46
With the exception of the business and prepaid segments as set out in Section 6.4.3.2.
24
(85) The qualitative, as well as quantitative, evidence collected by the Commis-
sion during its market investigation confirms each of the key elements in its
analysis.
6.2. Factors likely to lead to a significant impediment to effective competition
(86) A merger may significantly impede effective competition in a market by re-
moving important competitive constraints on one or more sellers, who con-
sequently have increased market power. The most direct effect of the merger
will be the loss of competition between the merging firms. Non-merging
firms in the same market can also benefit from the reduction of competitive
pressure that results from the merger. These effects are non-coordinated ef-
fects.
(87) Often, a merger giving rise to such non-coordinated effects would signifi-
cantly impede effective competition by creating or strengthening the domi-
nant position of a single firm, which, typically, would have an appreciably
larger market share than the next competitor post-merger.
(88) However, as set out in recital 25 in the preamble to the Merger Regulation,
mergers in oligopolistic markets, involving the elimination of important
competitive constraints that the Parties previously exerted upon each other
together with a reduction of competitive pressure on the remaining competi-
tors may, even where there is little likelihood of coordination between the
members of the oligopoly, also result in a significant impediment to effective
competition notwithstanding that they do not give rise to or strengthen a
dominant position.
(89) Recitals 24 and 25 in the preamble to the Merger Regulation clarify that all
mergers giving rise to such non-coordinated effects should be declared in-
compatible with the internal market.
(90) The Notifying Party argues that, with a combined market share of under
25%, there is a presumption that the Proposed Transaction does not raise
competition concerns. It claims that the Commission's prior decisions under
the Merger Regulation concerning non-coordinated effects are, with very few
exceptions, associated with market shares indicative of dominance.
47
(91) To support this point, the Notifying Party cites four decisions that involved
concerns in the absence of dominance in which the Commission opened a
Phase II
48
investigation or commitments were accepted in Phase I].
49
The
Notifying Party distinguishes these cases from the case at hand. In none of
47
See paragraph 22 of the Notifying Party's "Response to the Commission's decision of 28 June
2012 pursuant to Article 6(1)(c) of Regulation 139/2004" of 11 September 2012.
48
The expression "Phase II" refers to the in-depth proceedings the Commission opens once it
has established that a notified concentration gives rise to serious doubts. Phase I therefore re-
fers to the Commission's investigation preceding such a decision.
49
See cases Case No COMP/ M.3916 – T-Mobile/teleMobile Austria/Tele.ring; Commission
Decision of 12 March 2009 in Case No COMP/M.5355 – BASF/CIBA, OJ C 122, 30.5.2009,
p. 5; Commission Decision of 12 November 2009 in Case No COMP/M.5549 – EDF/Segebel,
OJ C 57, 9.3.2010, p. 9; Commission Decision of 22 December 2008 in Case No
COMP/M.5224 – EDF/British Energy, OJ C 38, 17.2.2009, p. 8.
25
the four cases was the merged entity the smallest. Rather, the mergers in
those cases gave rise either to the market leader or to the second largest com-
petitor. The Notifying Party argues that the Commission has never previously
raised concerns based on non-coordinated effects against a merger creating
the smallest player with two large and viable competitors, even in cases
which did not involve the creation or strengthening of a dominant position.
(92) The Commission considered the arguments and the decisional precedents
cited by the Notifying Party. The Commission disagrees that any legal pre-
sumption exists for mergers based on allegedly low market shares. The "legal
presumption" of the Merger Regulation cited by the Notifying Party
50
is in
fact no more than "an indication" that the undertakings concerned may not be
liable to impede effective competition if their market shares do not exceed
25% either in the internal market or in a substantial part of it.
51
The Merger
Regulation does not contain any legally binding rule that concentrations lead-
ing to a combined market share of under 25% should be cleared as a matter
of principle.
(93) Moreover, the Commission's precedents include a number of cases with low
market shares where the Commission found concerns. In case M.5224 –
EDF/Segebel
52
for instance, the market shares of the Parties were even
smaller and the main competitor was much stronger than in this case. None-
theless, the Commission identified serious concerns that the Parties remedied
with commitments in Phase I. Case M.3916 – T-Mobile/tele.ring
53
– similarly
a case without creation or strengthening of dominance – may result in the
creation of the number two player in the market. However, it concerned a
concentration of the market from five to four players. As regards case
M.5224 – EDF/British Energy, the Commission found that the transaction
would have been likely to raise serious competition concerns despite rela-
tively low market shares
54
and cleared the case subject to remedies in Phase
I.
55
For case M.5355 – BASF/CIBA, the Commission reasoned that while the
Proposed Transaction would not significantly modify the structure of the ma-
50
H3G response to the SO, paragraph 6.
51
See rec. 32 of the Merger Regulation.
52
See Commission Decision of 12 November 2009 in Case No COMP/M.5549 – EDF/Segebel,
OJ C 57, 9.3.2010, p. 9, paragraphs 59 and following.
53
See Case No COMP/ M.3916 – T-Mobile/teleMobile Austria/Tele.ring, paragraphs 29 and
following.
54
The Commission was concerned that the proposed transaction could have made it easier for
the merged entity to withdraw electricity supplies from the market in order to increase price,
that the merger would have led to a reduction of liquidity which could have had negative ef-
fects in both the wholesale and the retail supply markets, that the transaction would have led
to a high concentration in the ownership of sites most likely to be suitable for new nuclear
build, that the merged entity would have held connection rights beyond its combined capacity
expansion plans, with the risk of unduly delaying power generation projects of its competitors.
55
The notifying parties committed to divest two power generation plants, to sell certain mini-
mum volumes of electricity in the wholesale market for a certain period of time when the
combined entity would have had the ability to internalise the use of electricity that it produces,
to divest a site potentially suitable for building a new nuclear power station and to end one
grid connection agreement.
26
jority of the relevant markets, it would still raise competition concerns in a
number of relevant specialised markets,
56
and only cleared the case subject to
remedies
57
in Phase I. Moreover, the concerns in many other cases focus on
issues such as potential competition
58
or pipeline products
59
rather than on
mere market share figures.
(94) The Commission considers that the case at hand can be qualified as a case
leading to significant non-coordinated effects notwithstanding the absence of
the creation or strengthening of dominance.
(95) The guidelines on the assessment of horizontal mergers under the Council
Regulation on the control of concentrations between undertakings
60
("Hori-
zontal Guidelines") list a number of factors which, taken separately are not
necessarily decisive but may influence whether significant non-coordinated
effects are likely to result from a merger. Not all of these factors need to be
present for such effects to be likely. Nor should this be considered an exhaus-
tive list.
61
(96) The Commission notes that in the response to the SO, and in a somewhat
more detailed fashion in a paper written by the Parties' economic advisors in
response to the Article 6(1)(c) decision, the Parties argue that the Commis-
sion's analysis reflects a "structural presumption" as to the effect of a merger
from four to three players in an oligopolistic industry, and that such a pre-
sumption is contrary to the Horizontal Guidelines and the Merger Regula-
tion.
62
(97) This claim is unfounded. First it must be recalled that the Commission can
declare a concentration incompatible with the internal market only where it
can demonstrate that the notified operation would significantly impede effec-
tive competition in the internal market. In that regard, according to settled
case law, in the case of complex economic assessments, the burden of proof
placed on the Commission is without prejudice to its wide discretion in that
56
These markets were the following: DMA3 (dimethylaminoethyl acrylate – a chemical inter-
mediate); synthetic dry strength agents (used in the paper industry); bismuth vanadate (a pig-
ment); indanthrone blue (a pigment); SA (styrene acrylic – used as a glue for paper applica-
tions); HALS (hindered amine light stabilisers – used in plastics) and UV (ultraviolet light) fil-
ters for skin care products.
57
To resolve these competition concerns, the notifying parties proposed to divest i.a. production
assets at Ludwigshafen (Germany), Ciba's entire EEA synthetic dry strength agent business
and Ciba's global bismuth vanadate business.
58
See for example Commission Decision of 1 February 2012 in Case No COMP/M.6166 –
Deutsche Börse/NYSE Euronext, for example paragraphs 535 and following, 543 and follow-
ing, 702 and following, 862 and following, 893 and following.
59
See for example Commission Decision of 30 January 2004 in Case No COMP/M.1378 –
Hoechst/Rhône Poulenc, OJ C 42, 18.2.2004, p. 22, paragraphs 26, 45, 71 and following, 115
and following.
60
OJ C 31 of 5 February 2004, p. 5.
61
Horizontal Guidelines, paragraph 26.
62
Response to the SO, paragraph 85.
27
sphere.
63
In the case at hand, the Commission has analysed the Proposed
Transaction on its merits given the specificities of the case, and without any
presumption as to its effect on competition.
(98) When examining a case, the Commission assesses all the facts, including the
factors mentioned in the Horizontal Guidelines as being particularly relevant.
As set out in the Horizontal Guidelines, "it should be stressed that these fac-
tors are not a 'checklist' to be mechanically applied in each and every case.
Rather, the competitive analysis in a particular case will be based on an
overall assessment of the foreseeable impact of the merger in the light of the
relevant factors and conditions. Not all the elements will always be relevant
to each and every horizontal merger, and it may not be necessary to analyse
all the elements of a case in the same detail".
64
(99) Some of the factors cited in the Horizontal Guidelines as likely to influence
the potential for significant non-coordinated effects and which are relevant in
this case include the following:
– merging firms have a strong market position (discussed in section 6.4);
– the Parties are close competitors (section 6.5);
– the merger eliminates an important competitive force (section 6.6);
65
– competitors are unlikely to increase supply if prices increase (section
6.9).
66
(100) Other factors that the Commission takes into account when examining this
merger are likelihood of entry (section 6.7.1) and countervailing buyer power
(section 6.7.2). Finally, the Commission considers the claims of the Notify-
ing Party as to the relevant alternative scenario for Orange absent the merger
(section 6.10), the efficiencies claims put forward by the Parties (section 7)
and certain claims made by third parties (section 10) .
6.3. Description of the market
6.3.1. Market players in Austria (MNOs, MVNOs, resellers)
6.3.1.1. MNOs
(101) On the Austrian market for mobile telephony services to end customers, four
companies currently operate mobile telephone networks based on UMTS
(3G) or GSM (2G) technology. They are TA (through its subsidiary A1), T-
Mobile, Orange and H3G.
63
See, to that effect, Case T-342/00 Petrolessence and SG2R v Commission [2003] ECR II-
1161, paragraph 101, and the case-law cited, Case C-12/03 P Commission v Tetra Laval
[2005] ECR I-987, paragraph 38 and Case T-87/05 EDP v Commission [2005] ECR II-3745,
paragraph 63.
64
Horizontal Guidelines, paragraph 13.
65
Horizontal Guidelines, paragraphs 37–38.
66
Horizontal Guidelines, paragraphs 32–35.
28
(102) The four network operators offer their customers a wide range of services
such as voice telephony and data services, international roaming, etc., on
both a subscription (post-paid) and a pre-paid basis.
(103) The player with the largest market share is A1, a subsidiary of the historical
incumbent telephony operator Telekom Austria. A1 has been active in the
Austrian market since 1996 and currently has […]* customers. A1 also oper-
ates the brands "bob" and "Red Bull Mobile".
(104) The operator with the second largest market share in terms of subscribers is
T-Mobile, a subsidiary of Deutsche Telekom. T-Mobile has also been in the
market since 1996 (until 2002 under the name "max.mobil"). T-Mobile has
approximately […]* million customers. T-Mobile owns tele.ring, a second
brand that used to be an independent operator until 2007.
(105) Orange Austria is the third largest MNO in Austria. It has been active since
1998 (until 2008 under the name "one"). Orange has about […]* million cus-
tomers. Orange owns Yesss!, a second brand focusing on pre-paid no-frills
customers.
(106) H3G, the fourth largest Austrian MNO, entered the market in 2003 as a pure
3G provider and has about […]* customers. In order to offer its customers
2G services throughout Austria, H3G has entered into a national roaming
agreement with TA which is due to expire in December 2013 at the latest. As
from the third quarter of 2012, a new national roaming agreement concluded
between H3G and T-Mobile will replace the previous agreement with TA ac-
cording to information provided by the Notifying Party.
(107) The Proposed Transaction would be the second consolidation in the Austrian
mobile telecommunications market since the take-over of tele.ring by T-
Mobile in 2006
67
and would further reduce the number of MNOs from four
to three. Both H3G and Orange purchased some of the assets which T-
Mobile was required to sell as a result of the Commission's conditional clear-
ance decision in that case.
(108) Table 1 gives an overview of the current spectrum allocation and the alloca-
tion following implementation of the acquisition of Orange, the Yesss! Ac-
quisition and the acquisition of Orange assets by A1.
67
Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring.
29
Table 1: Spectrum Allocation of Austrian MNOs pre and post-merger
Source: RTR / Market investigation
6.3.1.2. MVNOs and second brands
(109) In addition to the MNOs and their second brands, there are two independent
MVNOs active on the Austrian market which do not own their own network
and are hosted by one of the MNOs. These MVNOs are: eety
68
and Vectone.
(110) Bob was launched by A1 (owned by the telecoms incumbent TA) as a no-
frills offering in 2006.
69
The brand currently has about […]* subscribers and
focuses on no-frills post-paid contracts.
(111) Tele.ring, formerly an independent MNO active in Austria since 2000, was
acquired by T-Mobile (owned by Deutsche Telekom) in 2006.
70
The brand
has [0-5]* million customers.
(112) Yesss! is Orange's no-frills brand focusing on pre-paid contracts. The brand
was launched in 2005 and has about [0-5]* million subscribers.
71
(113) Vectone is a niche MVNO catering to ethnic demand and offering cheap in-
ternational calls. It is owned by Mundio Mobile Limited and provides its ser-
vices using A1's mobile network. Vectone has an estimated market share of
no more than […]*% in terms of subscribers.
72
68
Eety has about [0-100,000]* subscribers. Orange holds a […]*% stake in the company.
69
See Form CO, paragraph 163.
70
See Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring.
71
See Form CO, paragraph 163.
72
See Form CO, Table 5.
30
6.3.1.3. Resellers
(114) A significant number of independent resellers are also active in Austria.
However, in practice, resellers account for a negligible portion of total sub-
scribers. Resellers include the following operators: Yooopi.at, Woww, Bil-
litel, Teleplanet, Red Phone KIKA, Data Mobile AG, You Talk, sBudget,
Ge_Org, Silver:Mobile, Fixed line ISP Ferngas, Fixed line ISP Stadtwerke
Schwaz, Fixed Line ISP Hall AG, volMobil, Sadtwerke Wörgl, Gemeinde
Silbertal.
6.3.2. Regulatory requirements for setting up mobile telecommunications networks
(115) The legal requirements for setting up mobile telecommunications networks
are contained in the Austrian Telecommunications Act of 2003 ("TKG
2003"),
73
essentially comprising four aspects:
– a general authorisation for the operation of telecommunications infra-
structure and the provision of telecommunications services ("Allge-
meingenehmigung"; section 15 TKG 2003);
– radio frequency licence(s) for the use of the allocated spectrum;
– the approval of the customer terms and conditions by the TKG;
– a number of ancillary regulatory requirements.
6.3.2.1. General authorisation
(116) MNOs have to procure general authorisations. Under this general authorisa-
tion scheme, the RTR must issue a certificate of acknowledgement within
one week of the submission of a complete notification (Sections 15 and 16
TKG 2003).
6.3.2.2. Allocation of frequencies
(117) The allocation of radio frequency is a prerequisite for an MNO to be able to
operate a mobile telecommunications network and to provide mobile tele-
communications services.
(118) Whilst in principle any person can apply for an allocation of radio frequen-
cies, in the case of an MNO, there will be eligibility criteria in order to par-
ticipate in the auction, and it will need to substantiate its ability to provide
telecommunications services from both a technical and an economic perspec-
tive.
6.3.2.3. Approval of customer terms and conditions
(119) Under Section 25 paragraph 1 of the TKG 2003, the customer terms and
conditions must be notified to – and for operators having significant market
power, approved by – the RTR prior to the launch of services and prior to
making those terms and conditions publicly available.
73
See "Bundesgesetz, mit dem ein Telekommunikationsgesetz erlassen wird (Telekommunikati-
onsgesetz 2003 – TKG 2003)", Federal Law Gazette (BGBl.) I Nr. 70/2003.
31
6.3.2.4. Ancillary regulatory requirements
(120) In addition to requirements stated in Sections 6.3.2.1 to 6.3.2.3, MNOs must
also apply for several ancillary regulatory authorisations.
74
6.3.3. Regulatory requirements for installing new masts
(121) The construction and installation of new mast sites in Austria requires a
number of approvals.
(122) There are national, state and municipal laws which apply to the erection of
new masts and antennae in Austria. Broadly:
– the federal laws impose standards with respect to radiation emissions
levels and equipment type approvals, as well as requirements relating
to air traffic safety, protection of woods etc.;
– there are nine states in Austria, and the state laws regulate the construc-
tion permits which are administered by the local municipality and/or
borough/county; and
– municipal laws protect the landscape, the overall appearance of the site,
site preservation and other local zoning requirements.
(123) The erection of a rooftop mast site may require the following approvals (in
addition to the construction permit):
– townscape authority approval ("Stadtbildbehörde"), relating to the ap-
pearance;
– protection of historical building approval ("Denkmalamt");
– flight safety approval ("Flugsicherheitsbehörde");
– military aviation approval ("Militärluftfahrtbehörde");
– railroad approval ("Verkehrsministerium");
– traffic law approval;
– sharing partner approval; and
– emission calculation approval.
(124) The erection of a new mast (that is to say, a greenfield site) may require the
following approvals in addition to the construction permit:
– townscape authority approval ("Stadtbildbehörde"), relating to appear-
ance;
– clearing approval ("Rodungsbewilligung – Naturschutzbehörde");
– nature conservancy approval ("Naturschutzbehörde");
– forestry law approval ("Naturschutzbehörde");
74
These include: the allocation of number ranges; carrier codes; national and international sig-
nalling point codes; IP ranges; plant permissions for base stations; and type ratings for certain
radio equipment.
32
– flight safety approval ("Zivilluftfahrtsbehörde");
– military aviation approval ("Militärluftfahrtbehörde");
– water right approval ("Wasserrechtsbehörde");
– railroad right approval ("Verkehrsministerium");
– traffic law approval;
– sharing partner approval; and
– emission calculation approval.
(125) Permission for the erection of new greenfield masts is often granted only on
condition that the sites may be used by more than one MNO.
75
While passive
site sharing
76
is permitted, or even encouraged,
77
by the telecoms regulator as
long as two MNOs do not share more than 50% of their sites, the regulator
considers active site sharing
78
problematic once each MNO involved inde-
pendently operates less than 50% of its sites outside of the (active sharing)
cooperation arrangement, but still only uses its own frequencies. The TKK
further holds that active site sharing combined with spectrum sharing
79
may
have an adverse effect on competition because it does not necessarily ensure
sufficient competitive differentiation between the cooperation partners.
(126) The erection of a new mast site will also require the conclusion of rental
agreements with the landlord(s) regarding the building or land on which the
mast will be placed, as well as other agreements for rights of way, access to
the site, laying power cables, temporary construction roads as required, etc.
(127) The rollout of new sites takes between 12 to 36 months.
80
75
See Form CO, para 681: In Austria, there are no statutory requirements or licence conditions
which would mandate MNOs to share sites. There is, however, a right under Section 8(2) of
the TKG for an MNO to require another MNO to share individual sites on request, which can
only be refused on grounds of a lack of technical or commercial feasibility. The requesting
MNO has to pay a fee of EUR 30 000 for the initial 8 years of sharing, with an additional fee
depending on the dimension of the antenna. Whilst site sharing is encouraged by the authori-
ties, with several regional authorities requesting MNOs to increase their site sharing ratio and
to deconstruct redundant greenfield masts, any request for site sharing between MNOs will,
however, be subject to the various planning, landlord and other approvals.
76
The TKK defines passive site sharing as the joint use of transmitter masts by mobile opera-
tors; Form CO, paragraph 686.
77
Passive site sharing reduces the number of necessary locations for masts and may therefore
have a beneficial effect on townscapes and landscapes.
78
The TKK defines active site sharing as the joint use of electronic components such as trans-
mission or switching equipment; Form CO, paragraph 689.
79
In the case of active site sharing combined with spectrum sharing, the MNOs share active
network elements as well as each other's spectrum; Form CO, paragraph 691.
80
The success rate for erecting new greenfield masts is 25%, is 60% to 70% for masts in rural
areas the success rate, but only 20% to 30% in urban areas. Upgrading existing sites takes
takes between 6 to 24 months and shows similar success rates for urban and rural areas; see
Form CO, Table 47.
33
6.3.4. Spectrum auctions
(128) In general, the Telecoms Office (which is a part of the Federal Ministry of
Transport, Innovation and Technology) has responsibility for spectrum man-
agement and the administration of the National Frequency Usage Plan.
Where wireless services are not provided to the public and where the radio
frequency is not considered to be a scarce resource, the Telecoms Office is-
sues the radio frequency assignment authorisation directly and without run-
ning an auction.
(129) Where market demand indicates specific radio frequency to be a scarce re-
source, such as in the case of the operation of a mobile telecommunications
network, the Telecoms Office has to refer an application for radio frequency
to the TKK, as assisted by its operational support unit RTR,
81
which then as-
signs the radio frequency to interested MNOs by means of a public tender
and auction.
(130) The next spectrum auction concerning the 800, 900 and 1 800 MHz frequen-
cies was originally scheduled to take place in September 2012.
82
However
the TKK decided to delay the auction until 2013 in the light of the on-going
merger proceedings in this case.
(131) At present the regulator envisages auctioning the following spectrum:
Table 2: Frequency Spectrum of Upcoming Austrian Auction
Frequency Bands Blocks Range
800 MHz Band Six 2 x 5 MHz blocks (paired
spectrum)
791–821 MHz (Downlink) and
832–862 MHz (Uplink)
900 MHz-Band Seven 2 x 5 MHz blocks
(paired spectrum)
880–915 MHz (Uplink) and
925–960 MHz (Downlink)
1 800 MHz-Band Fifteen 2 x 5 MHz blocks
(paired spectrum)
1,710–1,785 MHz (Uplink)
and 1,805–1,880 MHz (Down-
link)
Source: RTR
(132) Due to existing usage in the frequency bands 900 and 1 800 MHz, parts of
the spectrum auctioned in those bands will only become available from 1
January 2016, 1 January 2018 and 1 January 2020. The currently unused up-
per end of the 1 800 MHz band (former DECT-guard-band) and the 800
MHz band will be available just after the auctioning procedure. Those fre-
quencies are part of the so-called "digital dividend". The upcoming spectrum
81
For more information on these bodies see http://www.rtr.at/en/tk/Institutionen (retrieved 19
October 2012).
82
For a complete list of previous frequency allocation procedures in Austria see
http://www.rtr.at/en/tk/FRQ_procedures (retrieved 19 October 2012).
34
auction will therefore define frequency allocation in Austria for the mid to
long-term.
6.4. Market shares and market structure post-merger
6.4.1. Introduction
(133) The Commission has analysed the market shares of the Parties in a number of
different ways to ensure its assessment is complete and reflects the particular
characteristics of the market in question.
(134) Firstly, the Commission examined the overall market shares which are meas-
ured on the basis of the existing stock of customers. The Commission exam-
ined HHI
83
values and deltas, the relevance of which is referred to in the Hor-
izontal Guidelines. The Commission then looked closely at the Parties' posi-
tion in certain segments which are particularly relevant for growth and inno-
vation (such as post-paid voice and data and data only) and which are likely
to influence the overall market for telecommunications services going for-
ward. Finally, the Commission considered the dynamic power of the Parties
in the market arising from their current ability to attract new customers.
6.4.2. Market shares on the overall market for mobile telecommunications services
to end customers
(135) According to the information provided by the Notifying Party, the Proposed
Transaction would combine the smallest and second-smallest mobile network
operators in Austria, with a combined market share remaining below 25%.
84
To this end the Notifying Party presents data based on existing number of
subscribers and revenue, covering both voice-enabled devices and data-only
devices. On such a basis, shares on the Austrian market for mobile telecom-
munications services to end customers would be as set out in Tables 3 and 4
(pre and post-transaction).
85
Table 3: Total retail market by subscribers (both voice-enabled and data-only devices,
pre- and post-paid)
Subscribers
2009 2010 2011
Operator
Subscribers
Share (%)
Subscribers
Share (%)
Subscribers
Share (%)
83
The overall concentration level in a market may also provide useful information about the
competitive situation. In order to measure concentration levels, the Commission often applies
the Herfindahl-Hirschman Index (HHI). The HHI is calculated by summing the squares of the
individual market shares of all the firms in the market. The HHI gives proportionately greater
weight to the market shares of the larger firms. Although it is best to include all firms in the
calculation, lack of information about very small firms may not be important because such
firms do not affect the HHI significantly. While the absolute level of the HHI can give an ini-
tial indication of the competitive pressure in the market post-merger, the change in the HHI
(known as the "delta") is a useful proxy for the change in concentration directly brought about
by the merger; see Horizontal Guidelines, paragraph 16.
84
Form CO, paragraph 12, 18.
85
The figures in the tables below may not always add up to full numbers due to rounding.
35
(m) (m) (m)
H3G
[…]*
[5-10]*%
[…]*
[5-10]*%
[…]*
[10-20]*%
Orange
Austria (excl.
Yesss!)
[…]*
[10-20]*%
[…]*
[10-20]*%
[…]*
[10-20]*%
Combined
[…]*
[20-30]*%
[…]*
[20-30]*%
[…]*
[20-30]*%
TA
[…]*
[40-50]*%
[…]*
[40-50]*%
[…]*
[40-50]*%
Yesss!
[…]*
[5-10]*%
[…]*
[5-10]*%
[…]*
[5-10]*%
TA and
Yesss!
combined
[…]*
[40-50]*%
[…]*
[40-50]*%
[…]*
[40-50]*%
T-Mobile
[…]*
[30-40]*%
[…]*
[30-40]*%
[…]*
[30-40]*%
Vectone
[…]*
[0-5]*%
[…]*
[0-5]*%
[…]*
[0-5]*%
Total
[…]*
100% […]* 100%
[…]*
100%
Source: Form CO, Annex 6.3, Table 1
Table 4: Total retail market by revenues (both voice-enabled and data-only devices,
pre- and post-paid)
Revenues
2009 2010 2011
Operator
m EUR Share (%) m EUR Share (%) m EUR Share (%)
H3G
[…]*
[5-10]*%
[…]*
[5-10]*%
[…]*
[5-10]*%
Orange
Austria (excl.
Yesss!)
[…]*
[10-20]*%
[…]*
[10-20]*%
[…]*
[10-20]*%
Combined
[…]*
[20-30]*%
[…]*
[20-30]*%
[…]*
[20-30]*%
TA
[…]*
[40-50]*%
[…]*
[40-50]*%
[…]*
[40-50]*%
Yesss!
[…]*
[0-5]*%
[…]*
[0-5]*%
[…]*
[0-5]*%
TA and
Yesss!
combined
[…]*
[40-50]*%
[…]*
[40-50]*%
[…]*
[40-50]*%
T-Mobile
[…]*
[30-40]*%
[…]*
[30-40]*%
[…]*
[30-40]*%
Vectone
[…]*
[0-5]*%
[…]*
[0-5]*%
[…]*
[0-5]*%
Total
[…]*
100%
[…]*
100%
[…]*
100%
36
Source: Form CO, Annex 6.3
6.4.3. HHI and other indicators of the competitive dynamics in the market
6.4.3.1. HHI and delta values
(136) Although the combined market shares of the Parties would be below 25%,
86
the HHI and delta values are above those defined as initial indicators of the
absence of competition concerns in the Horizontal Guidelines.
87
(137) On the basis of the data provided by the Parties, the mobile retail market can
be characterised as highly concentrated. The post-merger HHI value based on
number of subscribers is [0-5000]. The Delta is [500-1000] compared to the
pre-merger situation and [0-500] when focusing solely on the acquisition of
Orange by allocating Yesss! to TA.
Table 5: HHI – Mobile end customer market based on number of subscribers (2009–
2011)
HHI
2009 2010 2011
Pre-merger
[…]* […]* […]*
Pre-merger, add-
ing Yesss! to TA
[…]* […]* […]*
Post-merger
[…]* […]* […]*
Delta
[…]* […]* […]*
Source: Form CO
6.4.3.2. Differential effects of the transaction according to market segments
(138) In order to assess the effects of the transaction on competition, and in view of
the limited likelihood of significant demand side switching between some of
the various segments given their very different characteristics, the Commis-
sion considered the effects of the Proposed Transaction both on the market
for mobile telecommunications services to end customers as a whole and on
certain important market segments within it.
(139) While from the supplier point of view the products (bundles of voice, SMS
and data) are homogenous and technically substitutable,
on the basis of de-
mand-side characteristics the mobile market can be divided into at least four
major segments, namely (i) business, (ii) post-paid voice and data (often with
bundled handsets and lock-in periods), (iii) pre-paid voice and, to some ex-
tent, data (possibly including certain no-frills post-paid plans as well), and
(iv) data-only plans (that is to say, plans for use on devices which do not
86
The market share below which according to Recital 32 of the Merger Regulation there is an
indication that the transaction does not significantly impede effective competition. See also
point 18 of the Horizontal Guidelines.
87
Horizontal Guidelines, paragraphs 19 and following.
37
support voice services). These segmentations are widely used in the industry
and also correspond to standard distinctions made for commercial purposes
by the Parties. Within each of these segments there is further differentiation
due to the marketing and pricing strategies of the MNOs.
(140) It is generally recognized within the Commission's merger control practice
that, within a market, competition concerns may arise in relation to certain
segments which have a particular importance for the market as a whole.
88
Post-paid bundles and data only tariffs are, by virtue of their characteristics
and intended use, distinct segments of demand – a point the Parties have not
seriously contested – and of particular importance in terms both of revenue
and future market developments. It is therefore important that the Commis-
sion examines the effect of the transaction not only on the market as a whole,
but also on each segment separately. An effect on important segments within
the relevant market is, in the circumstances of this case, an effect on that
market as a whole.
(141) The Notifying Party, in its reply to the SO
89
, argues that the Commission's
approach disregards the correct analytical framework for the assessment of a
merger, which is that the Commission must have regard to the market share
of Parties on the relevant market.
(142) The Commission considers the Notifying Parties' argument to be unconvinc-
ing. The Commission's conclusions as to the existence of a single overall
market, as in previous cases, rest on supply side considerations, and more
particularly on the technical possibility for any of the operators to enter or
expand in any of the segments.
(143) The Commission Notice on the definition of relevant market for the purposes
of Community competition law (Notice on the definition of the relevant mar-
ket)
90
should not, and cannot, however be interpreted to assume that supply
side substitutability, which rests on technical considerations of possibility,
implies the necessary existence of a competitive constraint since the exis-
tence of an actual competitive constraint due to supply-side substitution re-
quires not only the ability to enter or expand in the segment in question but
also the incentive to do so. All the players who would seem most likely to do
so are already present in the segment and have therefore determined the
product offering and prices in that segment which they deem appropriate in
the pre-merger situation. The question of incentive therefore needs to be ana-
lysed in this case on the basis of the competitive assessment. There cannot be
88
See Commission Decision of 17. November 2010 in Case No COMP/M.5658 – Unilever/Sara
Lee Body Care, OJ C 23, 28.1.2012, p. 30, for example paragraphs 138, 176 and following,
514 and following, 579 and following, 675 and following, Commission Decision of 4 Febru-
ary 2009 in Case No COMP/M.5253 – Sanofi-Aventis/Zentiva, OJ C 66, 20.3.2009, p. 24, for
example paragraphs 78, 80 and following; Commission Decision of 19 December 2008 in
Case No COMP/M.5295 – Teva/Barr, OJ C 10, 15.1.2009, p. 1, paragraph 182.
89
See H3G Response to the SO, section B.
90
OJ C 372, of 9 December 1997, p. 5, paragraphs 20 and following.
38
a presumption of competitive constraint from the mere ability to expand in
the relevant market.
91
(144) In relation to pre-paid services, as a result of the simultaneous divestment of
Orange's pre-paid Yesss! brand, the overlap between the Parties and their
overall position post-merger in the pre-paid voice-enabled segment is limited
([10-20]*% by number of subscribers and [10-20]% by revenues).
92
Regard-
ing business customers, although Orange is relatively well-positioned in the
business segment with a [10-20]*% subscriber share, H3G has had less suc-
cess in gaining market share in this segment, with only [0-5]*% of the total
business subscriber base.
93
(145) As a result, the Proposed Transaction is not expected to have a significant
impact on pre-paid and business customers, at least in the short term.
(146) In the case at hand the Commission further examined the segment of post-
paid private voice and data (that is to say, bundled offerings for use on voice-
enabled devices) and the data-only segment. This all the more appropriate in
this case, given that the segments in question are particularly important for
the market as a whole and its near-term development.
(147) The post-paid private voice and data segment is the largest market segment,
accounting for over two-thirds ([60-70]*%) of the total revenues of Orange
94
and almost two-thirds ([60-70]*%) of the total revenues of H3G.
95
Although
the data-only segment is for the moment significantly smaller as a proportion
of revenues ([20-30]*% of the revenues of H3G;
96
[5-10]*% of those of Or-
ange
97
), it assumes particular importance, as data use is already the biggest
driver of growth in the market, and this trend is expected to continue and in-
91
Paragraph 2 of the Notice makes clear that the purpose of market definition is to establish
which firms are capable of constraining the Parties. Even when there is no further demand
segmentation, the fact that firms are capable of constraining Parties does not mean they will
do so to a sufficient degree in practice.
92
See Tables 22 and 5 of Annex 6.3 to the Form CO. The figures for revenues include pre-paid
data-only services, for which the Parties have not identified separate figures.
93
See Table 13 of Annex 6.3 to the Form CO.
94
See Orange Financial report for Dec 2011 provided in response to the Commission's RFI of 4
July 2012 (calculated as total post-paid revenues for the year (tab 5) divided by total service
revenues excluding Yesss! (tabs 1 and 1a)), From this the Commission has subtracted the pro-
portion of revenue from business customers ([10-20]*%) implied by dividing Table 34 of An-
nex 6.3 to the Form CO by Table 2 of Annex 6.3 to the Form CO .
95
Based on figures for 2011 in Annex 6.3 to the Form CO, Table 31 of Annex 6.3 to the Form
CO divided by Table 2 of Annex 6.3 to the Form CO. The figure in Table 31 includes reve-
nues from post-paid data-only, which amounted for H3G in 2011 to € […]* (see Annex 3.1 to
H3G's reply to the Commission's RFI of 4 April 2012, tariffs marked as "data", excluding
those marked as "ReLoad" and "SuperSIM" which are pre-paid); this amount has been de-
ducted from the total.
96
See Annex 3.1 to H3G's reply to the Commission's RFI of 4 April 2012, tariffs marked as
"data".
97
See Orange Financial report for December 2011 provided in response to the Commission's
RFI of 4 July 2012 (calculated as total datacard revenues for the year (tab 7) divided by total
service revenues excluding Yesss! (tabs 1 and 1a)), The datacard numbers may include some
Yesss! prepaid data plans and thus may slightly overestimate the correct total.
39
tensify in the next few years. Indeed, LTE is a network protocol designed for
data, in which voice is expected to occupy only a very minor share of total
traffic.
(148) The following pie chart shows the revenue breakdown by segment for each
of the Parties (H3G is the outer circle, Orange the inner):
98
Figure 1: Revenue Breakdown by Segment
[…]*
Source: Form CO and own calculations (Orange in the inner circle, H3G in the outer circle)
(149) It follows that the post-paid segment is by far the most significant segment in
the market and for each of the Parties. The data segment is relatively big for
H3G, but modest for Orange, whereas pre-paid makes a small contribution to
total revenue for both Parties. In terms of subscriber numbers, business is
less than […]*% of the market total,
99
and by revenue pre-paid is less than
10% of the total.
100
The fact that there are some (small) segments on which
significant concerns would (if considered separately) not arise cannot be used
by the parties to argue that concerns would not arise on the market as a
whole.
(150) The Notifying Party's argument in its reply to the SO that the Commission
has focused on implausible and artificially designed market segments is
therefore unfounded.
(151) The Commission also considered whether or not supply-side substitution,
even if theoretically possible, would in fact provide an effective competitive
constraint on pricing in these segments given the characteristics of the mar-
kets at stake, and concluded that this would not be the case.
101
6.4.3.2.1. Post-paid private voice and data segment
(152) On the basis of a segmentation between pre- and post-paid, the Notifying
Party reports the subscriber shares set out in Table 6 for the post-paid seg-
ment.
98
Pre-paid revenues are derived from the Table 5 of Annex 6.3 to the Form CO, from which has
been deducted, in the case of H3G, prepaid data revenues from the tariff data referred to
above. Business revenues are taken from Table 34 of that annex.
99
For 2011. Source Annex 6.3 to Form CO, Table 13 of Annex 6.3 to the Form CO divided by
Table 1 of Annex 6.3 to the Form CO.
100
For 2011. Source Annex 6.3 to Form CO, Table 5 of Annex 6.3 to the Form CO divided by
Table 2 of Annex 6.3 to the Form CO.
101
In its response to the SO, the Notifying Party objected several times to the manner in which
the Commission had carried out the competitive assessment, essentially arguing that once the
Commission had concluded on a market definition based on supply-side substitution, it then
had to presume that supply-side forces would discipline competitive conditions within any
segment of the market even if, from a demand perspective, that segment might be distinct
from the overall market. See also Section 6.9 for the reactions of other competitors post-
merger.
40
Table 6: Post-paid private voice and data (subscribers)
Subscribers
2009 2010 2011
Operator
Subscribers
(m)
Share (%)
Subscribers
(m)
Share (%)
Subscribers
(m)
Share (%)
H3G […]* [5-10]*% […]* [5-10]*% […]* [5-10]*%
Orange
Austria (excl.
Yesss!)
[…]* [10-20]*% […]* [10-20]*% […]* [10-20]*%
Combined […]* [20-30]*% […]* [20-30]*% […]* [20-30]*%
TA […]* [40-50]*% […]* [40-50]*% […]* [40-50]*%
Yesss! […]* [0-5]*% […]* [0-5]*% […]* [0-5]*%
Combined […]* [40-50]*% […]* [40-50]*% […]* [40-50]*%
T-Mobile […]* [30-40]% […]* [30-40]*% […]* [30-40]*%
Vectone […]* [0-5]*% […]* [0-5]*% […]* [0-5]*%
Total […]* 100% […]* 100% […]* 100%
Source: Annex 6.3 to Form CO, Table 36
(153) On the basis of revenues, the Parties have been unable to split the data in this
way. Table 7 therefore includes post-paid revenues both from the post-paid
private voice and data segment and from data-only services.
Table 7: Post-paid private voice and data segment and data only segment (revenues)
Revenues
2009 2010 2011
Operator
m EUR Share (%) m EUR Share (%) m EUR Share (%)
H3G […]* [5-10]*% […]* [10-20]*% […]* [10-20]*%
Orange
Austria (excl.
Yesss!)
[…]* [10-20]*% […]* [10-20]*% […]* [10-20]*%
Combined […]* [20-30]*% […]* [20-30]*% […]* [20-30]*%
TA […]* [30-40]*% […]* [30-40]*% […]* [30-40]*%
Yesss! […]* [0-5]*% […]* [0-5]*% […]* [0-5]*%
TA and
Yesss! Com-
bined […]* [30-40]*% […]* [30-40]*% […]* [30-40]*%
T-Mobile […]* [30-40]*% […]* [30-40]*% […]* [30-40]*%
Vectone […]* [0-5]*% […]* [0-5]*% […]* [0-5]*%
41
Total […]* 100% […]* 100% […]* 100%
Source: Annex 6.3 to Form CO, Table 31
(154) From a comparison of Table 6 and Table 7 with Table 3 and Table 4 it can
also be noted that, in 2011, the post-paid voice segment accounted for just
over one-half of all subscribers (51.5%) but nearly two-thirds of total market
revenues (64.8%).
(155) In terms of revenue from post-paid private customers, it can be seen that the
combined share of the Parties is significantly higher than their share on the
overall market. This is a consequence of the higher revenue per customer
(and also high margins) that Orange achieves, which are much above the av-
erage. As a result, all three players remaining in the segment would, in terms
of revenue, be broadly in the same order of magnitude.
6.4.3.2.2. Data-only segment
(156) The non-phone segment represents the overwhelming majority of data traffic
over the networks of both the Parties and their competitors, although this
proportion is declining due to the increasing use of data services on smart-
phones. In 2009, only 5.4% of total mobile data traffic was over voice-
enabled devices, a proportion which rose to 17.3% in 2011. The non-voice
segment has continued to grow over the period 2009–2011 at a compound
annual growth rate (CAGR) of slightly over 50%, but in relative terms has
become less important due to the growth at a CAGR of nearly 200% of data
over smartphones. It is, however, possible that growth in the non-voice seg-
ment will again accelerate due to the increasing use by consumers of devices
with integrated UMTS/LTE modems such as tablets: sales of tablets in Aus-
tria only really started in 2010, when according to GfK 48 000 units were
sold; 179 000 were sold in 2011 and the 2012 prediction is for sales of
300 000 units (tablets typically consume more data per unit than phones).
102
It should further be noted that smartphones can also be used in so-called teth-
ering mode to allow access from other devices via Wi-Fi.
103
It is therefore
likely that both the smartphone and data-only segments will continue to con-
tribute to rapidly growing demand by Austrian consumers for mobile data
services in the coming years.
(157) The figures provided by the Parties were ostensibly based only on the num-
ber of dongles sold,
104
and therefore should have excluded use on other data-
only devices, in particular tablets.
105
The Parties have argued that they could
not distinguish "data-only" plans for use on, for example, tablets from other
plans which incorporate voice functionality because all SIM cards allow for
voice functionality. The Commission notes, however, that, even if this is
technically true, tariffs designed for use on phones and those designed for use
102
Form CO, paragraph 595.
103
For locked handsets, this function can, however, be disabled.
104
It is assumed that all dongles are locked to the network operator.
105
The Commission's understanding is that certain mobile routers have an integrated data modem
whereas others make use of a dongle.
42
on data-only devices are perceived and positioned differently in the market
and it is unlikely that there is any significant degree of demand-side switch-
ing between the two. Furthermore, in response to the Commission's Request
for Information ("RFI") of 4 April (tariff data) and 4 July 2012 (financial re-
ports), both Orange and H3G provided data allowing a broader view of the
data-only segment. Moreover the RTR has indicated that the data it collects
is based on such a wider basis, and that it does not have data limited to don-
gles only.
106
(158) The following table (Table 8) reports the total number of dongles (pre- and
post-paid) as provided by the Parties. The shares for 2009 and 2010 do not
give a total of 100% due to rounding errors in the Parties' data. According to
the table, there has been only modest growth in the installed base of dongles
over the period 2009–2011. It is, however, unlikely that almost all growth in
the market over this period is due to competitors as the Parties' data would
seem to suggest. As seen below,
107
data on new customers for the first five
months of 2012 do not support such a picture, as it is H3G which is growing
most quickly. Accordingly, the Commission takes the view that the position
of the Parties in this market segment should be considered to be in the range
of TA, with T-Mobile rather smaller.
Table 8: Data only (number of dongles, pre- and post-paid)
Dongles
2009 2010 2011
Operator
Dongles
(m)
Share
(%)
Dongles
(m)
Share (%)
Dongles
(m)
Share (%)
H3G […]* [30-40]*% […]* [20-30]*% […]* [20-30]*%
Orange Austria (excl.
Yesss!)
[…]* [5-10]*% […]* [5-10]*% […]* [5-10]*%
Combined […]* [40-50]*% […]* [30-40]*% […]* [30-40]*%
TA […]* [30-40]*% […]* [30-40]*% […]* [30-40]*%
Yesss! […]* [5-10]*% […]* [5-10]*% […]* [5-10]*%
Combined […]* [40-50]*% […]* [30-40]*% […]* [30-40]*%
T-Mobile […]* [20-30]*% […]* [20-30]*% […]* [20-30]*%
Total […]* 108% […]* 94% […]* 100%
Source: Annex 6.3 to Form CO, sum of Tables 29 and 44
(159) The Commission cross-checked the Parties' figures on data-only subscribers
in the Form CO with the tariff data provided in response to its RFI of 4 April
2012, and which include both dongles and other data-only tariffs. The figures
in terms of volume approximately tally. However, while the H3G subscriber
figures are approximately correct for data tariffs as a whole, they appear to
correspond to all data plans and not just dongles. Moreover, in terms of num-
ber of subscribers, Orange has [0-500000]* mobile broadband subscribers
106
See paragraph (220).
107
See paragraphs (171) and following.
43
according to the response to the RFI of 4 April 2012, which if included in
Table 9, would give Orange a market share of [5-10]*%.
(160) This estimate of Orange's market share, moreover, is itself far below the fig-
ure of [0-500000]*datacards in December 2011 provided in Orange's reply to
the RFI of 4 July 2012.
108
If that figure were taken and the market size corre-
spondingly increased, Orange's market share in terms of number of subscrib-
ers would have been [10-20]*% and H3G's [20-30]*%, giving a total of [40-
50]*% (leaving the Parties' estimates of competitors' shares unchanged).
(161) The claim of H3G in the response to the SO that its share in terms of revenue
from dongles was between [20-30]*% in each of the quarters of 2011
109
can-
not be verified by the Commission. The Parties did not supply an estimate of
market share by revenue with the Form CO. The Parties furthermore do not
say to which edition of the RTR Telekom Monitor they refer for the market
size, but the RTR Telekom Monitor does not appear to contain such a figure,
and indeed the word "dongle" is not even mentioned. This claim can there-
fore be rejected. The Commission has not been able to reconstruct a reliable
view of the market based on revenue from dongles owing to limitations in the
data it was able to obtain from the MNOs and for this reason has not based
its conclusions on such a figure.
(162) In respect of the market segment for data-only devices, the Proposed Trans-
action would therefore bring about a combined share of around [40-50]*% in
mobile broadband data usage in terms of number of subscribers.
110,111
In the
response to the SO, H3G argues that, if the data segment is a growth segment
(which it presumably concedes) "the Commission should also accept that,
consistent with its own guidelines, sales shares are an unreliable indicator of
market power in such a segment in any event".
112
However, the Horizontal
Guidelines do not imply that in dynamic and growing markets market shares
are necessarily unstable over time. The Commission notes in this regard that
H3G already has what is considered (and claimed by them) to constitute the
best network in Austria, a network which will become even better as a result
of the Proposed Transaction. As such, the need for a prospective merger
analysis reinforces the need to analyse the data segment.
(163) The Commission therefore considers that, for data-only devices, the Pro-
posed Transaction brings about a significant change in the structure of sup-
ply.
6.4.3.2.3. Indications of market strength based on new business
(164) Although a presentation of the market based on existing customers already
provides important indications as to the market position which the combined
108
See H3G Reply to RFI of 4 July 2012, Annex 3.1.3, work sheet "datacard analysis".
109
H3G Response to the SO, paragraph 78.
110
The Commission has not been able to reliably reconstruct market shares based on revenue
given inconsistencies in the data provided by the Parties and competitors.
111
See paragraphs (174) and following.
112
Response to the SO, paragraph 79. A similar claim is made at paragraph 72.
44
entity would have after the merger, in the market in question, existing market
shares are not conclusive as to the nature of competition. This is because
many customers are bound to long-term contracts, which means that, at any
given time, only a fraction of the total customer base is contestable. At any
given moment, competition occurs only in respect of those contestable cus-
tomers and entirely new customers (those who are not yet mobile subscribers
at all), whose numbers have been declining significantly in recent years as
the market has matured.
113
Consequently it would take a number of years be-
fore trends in winning new business were reflected in overall market share.
Therefore in order to form a view of the likely dynamics in the market for the
years following the implementation of the Proposed Transaction, it is also
necessary to consider measures of new business, not only of existing stock.
(165) The Horizontal Guidelines
114
state that "some firms have more of an influ-
ence on the competitive process than their market shares or similar measures
would suggest. A merger involving such a firm may change the competitive
dynamics in a significant, anti-competitive way, in particular when the mar-
ket is already concentrated".
(166) This is the case as regards the Proposed Transaction. Due to limited churn
and market saturation, it would probably take a long time for current gains of
new customers to be reflected in market shares. H3G has already had a high
rate of gross adds in the past and its market share has nonetheless only grown
slowly.
(167) The post-paid segment in Austria is characterised by a high degree of handset
bundling and relatively long lock-in periods, which are necessary to amortise
the handset subsidy included in the customer acquisition costs.
115
(168) It may be assumed that the tendency for customers to remain on a given tariff
plan well beyond the minimum two-year lock-in period is partly due to con-
sumer inertia and partly due to the opportunity cost of switching. In general,
switching in medium-term contracts markets presents an opportunity cost be-
cause the decision to switch implies foregoing opportunities to switch in the
future which may be more attractive. As long as a customer has not switched,
those opportunities have a real option value to the extent that the customer is
considering switching to a plan which includes a subsidized handset.
(169) The value proposition of doing so is less compelling to the extent that the
existing handset remains satisfactory. The choice of a new plan and handset
at any given point in time therefore entails foregoing options which might
appear on the market during the lock-in period of the new plan as well as
prematurely writing off the investment in the existing handset.
113
Information on gross adds provided by the Parties and their competitors in response to the
Commission's RFI of 8 May 2012 suggests that in the post-paid private voice-enabled seg-
ment, new customers accounted for nearly [50-60]*% of all business in 2009, a figure which
has subsequently declined constantly to [20-30]% in 2011 and [10-20]% in 1Q2012.
114
Horizontal Guidelines, paragraph 37.
115
In this Decision the term "handset" is used in a broad sense to include all end-user mobile
devices equipped with a SIM card, including tablets, dongles and mobile routers.
45
(170) It follows that limiting the analysis to historic market shares would not give a
complete picture as to the change of the competitive structure that would re-
sult from the Proposed Transaction, and it is necessary to complement this
with an analysis of current customer acquisition rates.
116
6.4.3.2.3.1. New business for post-paid private voice and data
(171) In terms of new private post-paid subscribers, H3G and Orange are much
more important than their installed customer base would suggest, notwith-
standing claims by H3G, further discussed in section 6.6, that it is reaching
network saturation. In particular, in 2012, as shown in Figure 2, in the post-
paid segment H3G and Orange consistently obtained around [20-30]*% of
the gross adds each (jointly between [40-50]*%).
117
On average, for the first
five months of 2012, H3G gained [20-30]*% of gross adds and Orange [20-
30]*%, a total of [40-50]*% together. T-Mobile gained [30-40]*% across its
two brands (T-Mobile and tele.ring), and A1 [20-30]*% with its A1, bob and
Red Bull Mobile brands.
118
Figure 2: Gross adds in the voice segment
[…]*
Source: presentation by Orange of June 2012
"067_Weekly_market_highlights_A_Moderc_120612.pdf". Doc ID 2499, slide 3.
(172) In the Mobile Number Portability ("MNP") data for the whole period 2009–
2012/Q1, [20-30]*% of all MNP switchers chose H3G and [20-30]*% chose
Orange. It should be acknowledged that this data does not include entirely
new users who may have a different pattern of preferences, though the pro-
portion of users who are entirely new is declining rapidly over time. Figure 3
shows the proportion of total MNP switchers in each quarter (indexed from 1
to 13) which selected each of the parties, showing comparable numbers and
no clear trend over time.
116
Cf. Commission Decision of 15 October 2010 in Case No COMP/M.5948 – Santan-
der/Rainbow, OJ C 320, 25.11.2010, p. 1 (paragraphs 13 and following), the Commission re-
ported mortgage market shares on the basis of new business, in view of the fact that legacy
stocks were not necessarily informative about future competition. In Commission Decision of
20 December 2011 in Case No COMP/M.6436 – Volkswagen Financial Ser-
vices/D'Ieteren/Volkswagen D'Ieteren Finance JV, OJ C 52, 22.2.2012, p. 1 (paragraphs 19
and following), market shares were computed on the basis of new leasing business. In Com-
mission Decision of 22 December 2005 in Case No COMP/M.3978 – Oracle/Siebel, OJ C 18,
25.1.2006, p. 23 (paragraphs 22 and following) and in Commission Decision 2005/621/EC of
26 October 2004 in Case No COMP/M.3216 – Oracle/PeopleSoft, OJ L 218, 23.8.2005, p. 6
(paragraphs 185 and following), market shares were calculated on the basis of new license
sales. The same approach was taken in the Commission Decision of 24 March 2004 in the an-
titrust case COMP/C-3/37.792 Microsoft, OJ L 32, 6.2.2007, p. 23 (see Recital 431).
117
See presentation by Orange of June 2012
"067_Weekly_market_highlights_A_Moderc_120612.pdf".Doc ID 2499, slides 3 and 4. On
the pre-paid segment, H3G and Orange also have a smaller share of the gross adds (roughly
between [5-10]*%-[10-20]*% for H3G and [5-10]*% for Orange (excluding Yesss!). Gross
adds is the term used in the industry for new customers to the firm in question, without deduc-
tion of those who leave.
118
Unweighted averages for the five months in question.
46
Figure 3: Proportions of Total MNP Switchers
[…]*
Source: Commission calculations based on MNP data (I mean 1st quarter = 1Q09 through
13th quarter = 1Q12)
(173) It follows from the foregoing that the Proposed Transaction would bring
about a significant change as regards competition for new business in post-
paid plans covering both voice and data, with the merged entity bringing to-
gether the two brands which together represent the first choice of nearly half
the market.
6.4.3.2.3.2. New business for data-only devices
(174) In the data-only segment, notwithstanding already being the leading operator,
H3G gained the second highest number of new customers both in the post-
paid and pre-paid subsegments, just behind A1.
119
The Proposed Transaction,
which would lead to a significant concentration in the broadband segment
based on installed base, would also do so in terms of new customers as the
number of new post-paid customers of H3G ranges between [20-30]*%-[30-
40]*% (average [30-40]%) and those of Orange range between [10-20]*%
(average [10-20]*%) of the total number of gross adds in the first five
months of 2012, for a total of [40-50]*%.
120
In this segment also, therefore,
the Proposed Transaction would bring together the first choice brands of
nearly half the market.
Figure 4: Gross adds in the data segment
[…]*
Source: presentation by Orange of June 2012
"067_Weekly_market_highlights_A_Moderc_120612.pdf". Doc ID 2499, slide 4.
6.5. Switching and closeness of competition
(175) While the market structure gives an indication as to the overall competitive
strength of the various market participants, this section focuses on the com-
petitive constraints imposed by the Parties on each other.
121
(176) In order for a merger to create significant non-coordinated effects, the prod-
ucts offered by the merging parties must be viewed as closest substitutes to
each other by a significant group of customers. This is clearly set out in the
Horizontal Guidelines, which state that "a merger between two producers of-
fering products which a substantial number of customers regard as their first
119
A1 would lead in pre-paid with inclusion of Yesss!.
120
In the pre-paid data segment, H3G captured between [30-40]*% and Orange got [0-5]*% of
the gross adds in 2012. In the pre-paid market, Orange is mainly present with its Yesss! brand
that has a [20-30]*% share of gross adds and is not retained as part of the concentration which
the Commission is required to assess. This segment is of much less weight in the total as only
[5-10]*% of H3G dongle data volume is on prepaid plans, and almost none is for Orange (be-
cause the prepaid business was almost all Yesss); based on March 2012; see H3G's reply to
the Commission's RFI of 8 May 2012.
121
Horizontal Guidelines, paragraphs 28-30.
47
and second choices could generate a significant price increase".
122
It is not
necessary for the group to constitute a majority of customers for it to be sub-
stantial. The Horizontal Guidelines also indicate that it is appropriate to look
at diversion ratios as part of the evidence to be considered in this respect
123
.
This is assessed in Section 6.5.1.
(177) In order to establish whether two firms are indeed close competitors, the No-
tifying Party claims, that, would require "the identification of similar charac-
teristic[s] between the Parties (which they do not share with the other com-
petitors) in an area which is of decisive importance for a particular but sig-
nificant group of customers".
124
By emphasising that similar characteristics
should not be shared with competitors, the Notifying Party implicitly sug-
gests that the Commission would have to show that the Parties are indeed
closest competitors in a number of dimensions.
125
The Horizontal Guidelines
state that a transaction may already generate a significant price increase if
only a "substantial number of customers regard [the Parties] as their first
and second choices".
126
(178) The Commission's analysis as regards the existence of a sufficient degree of
closeness of competition to result in a significant effect on competition is
based on the assessment of the MNP database and survey data, but also on
the results of its market investigation and the review of internal documents
submitted by H3G and Orange.
127
The purpose of the analysis is to show that
there exist dimensions in which the Parties are close; the observed diversion
ratios between them (that is to say, the proportion of customers of one which
switch to the other) are consistent with evidence from other sources.
(179) The Notifying Party considers that "there are no two mobile network opera-
tors in Austria who are particularly close competitors to each other within the
meaning of the Horizontal Merger Guidelines".
128
The Notifying Party also
states that "the Austrian market is characterised by fierce price competition"
and that "[a]ll operators contribute fully to this state of competition".
129
The
Commission's assessment of the factual situation – as opposed to the stan-
dard of proof – in this regard appears to be similar to that of the Notifying
122
Horizontal Guidelines paragraph 28.
123
Horizontal Guidelines, paragraph 29.
124
H3G´s response 4 October 2012 to the SO, para 89.
125
In that regard, the Horizontal Guidelines states in paragraph 28 that a merger will be less like-
ly to significantly impede effective competition where there is a high degree of substitutability
between the products of the merging firms and those supplied by rival producers. However,
this does not mean that a significant impediment to effective competition is unlikely (or im-
possible) whenever substitutability is lower between the products of the merging firms than
those supplied by rivals.
126
Horizontal Guidelines, paragraph 28.
127
In the SO (see Section 6.1.1.2.3), additional evidence was presented relating to a pricing anal-
ysis carried out with reference to the tariff data collected by the Vienna Chamber of Labour.
The Commission has, on further reflection, come to the view that this analysis is inconclusive
as to closeness of competition.
128
Form CO, paragraphs 203 and following.
129
See H3G´s response 4 October 2012 to the SO, paragraph 121.
48
Party. The additional elements in support of the position taken by the Com-
mission as regards closeness of competition are therefore mainly set out in
this Decision in support of the Commission's view that the Parties exert a
significant competitive constraint on each other.
6.5.1. Diversion ratios
(180) A specificity of the retail mobile telecommunications markets is that data on
subscriber switching between firms is readily available as a result of regula-
tory provisions on number portability. The net effect of the pattern of prefer-
ences in the market is shown by the diversion ratios observed.
130
(181) However, not all users port their numbers when they change providers. In
particular, the Commission agrees with the Notifying Party that the sub-
scriber number is likely to be unimportant to data-only users and, presuma-
bly, such users would be expected to figure scarcely in the database, if at
all.
131
(182) The Notifying Party also argues that "the vast majority of switchers who use
number portability are post-paid customers".
132
Indeed, according to the data
provided in Annexes 6(6) and 6(7) to the Form CO, switching to prepaid in
the MNP database as a proportion of all ported numbers in 2011 was only [0-
5]*% for H3G, whilst for Orange it was only [0-5]*%. Consistent with this,
the use made by the Commission of the MNP data concerns the post-paid
segment. The Commission has not been able to establish reliable quantitative
estimates of switching in the data-only segment.
6.5.1.1. The view of the Notifying Party
(183) The Notifying Party considers that because all MNOs are similarly close
competitors each switcher is equally likely to choose any mobile operator.
The Notifying Party argues on the basis of the MNP data that (i) Orange at-
tracts the lowest number of MNP switchers in the market and (ii) diversion
ratios show significant switching between all operators.
6.5.1.2. The Commission's assessment
6.5.1.2.1. Evidence on switching from the MNP Data
(184) The MNP switching data, which covers the period from 2009/Q1 to
2012/Q1,
133
shows, as the Notifying Party acknowledges, that H3G is win-
ning many more customers than it is losing. This pattern is consistent with
H3G's growing subscriber base. H3G loses customers in similar proportions
130
Horizontal Guidelines, paragraph 29.
131
Form CO, paragraph 205.
132
Form CO, paragraph 205. It is noted by the Commission that the very different attitudes this
would seem to imply as between prepaid and postpaid customers is supportive of the view that
they constitute largely distinct segments of demand. The only predominantly prepaid brand in
the data segment is Yesss!, which represents only [0-5]*% of outward switchers and [0-5]*%
of inward switchers. This disparity also suggests that users "graduate" from prepaid to post-
paid far more often than they change in the other direction.
133
The data for the first quarter of 2012 covers only the first two months of the period.
49
to all competitors and wins customers in particular from TA, but to a lesser
extent than TA's market share would suggest.
134
(185) For the first time since 2010, the MNP data shows that Orange was also quite
successful in the last quarter of 2011 and in the first two months of 2012. It
gained [10,000-20,000]* MNP switchers and lost [10,000-20,000]* MNP
switchers in the last quarter of 2011. In the first two months of 2012, Orange
gained [10,000-20,000]* and lost [0-10,000]* MNP switchers.
(186) If, as the Notifying Party argues, switchers were (at least on average) equally
likely to choose any mobile operator because they all offer very similar
products, then each MNO would be expected to capture switchers propor-
tionally to its competitors' relative market shares. The Notifying Party itself
has acknowledged, however, that H3G's share of all switching customers
based on MNP data is [30-40]% and its share of all customers switching from
Orange is [20-30]*%. This is broadly consistent with market shares only on
the assumption, apparently acknowledged by the Parties, that the correct
measures of competitive strength are the shares based on new business.
135
(187) The Commission would also point out that many factors contribute to the
overall pattern of switching. The mere fact that switching occurs in roughly
similar proportions to each of the other firms on average does not imply that
products are perceived by individual consumers as homogenous or that they
do not have preferences between them. For example the analyses carried out
for H3G of brand positioning cited below
136
show clearly that each brand has
a very distinct positioning based on a combination of its objective character-
istics and customer sentiment. Roughly equal switching rates may also be the
result of a process in which the strategic variables relate to product differen-
tiation. Thus firms may offer products which are similarly differentiated from
each other in terms of their characteristics, resulting in roughly equal switch-
ing rates between competitors, without this implying that there is no differen-
tiation.
(188) If diversion ratios from Orange to H3G and from H3G to Orange were esti-
mated based purely on market shares of existing subscribers, this would un-
derestimate to a significant degree the actual closeness of substitution be-
tween the two companies and therefore the ability of the merged entity prof-
itably to increase prices. The subscriber (respectively revenue) market shares
would predict a diversion ratio of only [0.10-0.20]* ([0.10-0.20]*) from H3G
to Orange and a diversion ratio of [0.10-0.20]* ([0.10-0.20]*) from Orange to
H3G.
137
The switching data shows, however, a much higher diversion ratio
134
For example, in 2011, A1's market share of subscribers in the mobile retail market was [40-
50]*% and that of H3G was [10-20]*%. Therefore, on the basis of market shares, one would
expect [40-50]*%/(1-10%) = [40-50]*% of H3G new customers to come from A1. However,
the share of customers that switched to H3G from A1 in 2011 was only [30-40]*%.
135
The Parties acknowledge that diversion ratios are similar to shares of gross adds at paragraph
3.13 of the Compass Lexecon submission of 10 September 2012 on unilateral effects.
136
See Section 6.5.2.4.
137
Using the market shares given in Annex 6.(2) to the Form CO ([10-20]*% H3G, [10-20]*%
Orange in terms of subscriber and [5-10]*% H3G and [10-20]*% Orange in terms of revenue)
50
of [0.20-0.30]* from H3G to Orange for the most recent twelve month period
and [0.20-0.30]* from Orange to H3G.
138
(189) The fact that approximately one third of Orange's post-paid customers switch
to H3G confirms the significant competitive constraint imposed by H3G on
Orange and similarly by Orange on H3G.
6.5.1.2.2. Evidence from surveys
(190) The Commission has also considered the arguments of the Parties whereby
other estimates of diversion ratios might be more appropriate than the esti-
mates furnished by the MNP data, in particular estimates of diversion ratios
based on customer surveys. However, as set out in more detail in Annex I,
the Commission has concluded that these alternative sources do not provide a
better estimate than the MNP data, and are, in any case, broadly consistent
with it. This is because the surveys mostly do not directly estimate the re-
quired diversion ratios, are based on small sample sizes (and therefore have
high margins of error), and suffer in certain cases from systematic biases.
There is therefore no reason to prefer estimates based on customer surveys to
the estimates based on the MNP data.
6.5.2. Other evidence on closeness of competition
6.5.2.1. The view of the Notifying Party
(191) In the response to the SO, H3G argues that the internal documents submitted
to the Commission confirm that all MNOs compete fiercely in all segments
of the market and do not provide any support for the theory that H3G and
Orange may be the closest competitors in relation to any dimension of com-
petition.
139
6.5.2.2. Analysis of market data
6.5.2.2.1. Private post-paid voice-enabled segment
(192) As seen from Table 11, H3G has a particularly aggressive offering towards
data-intensive smartphone users, resulting in its increasingly positioning it-
self as the operator of choice for many such users.
140,141
one can compute the diversion ratio from H3G to Orange based on subscriber market shares as
[10-20]/(100-10) = 0.10-0.20* and similarly for the others.
138
Data calculated for the last three quarters of 2011 and the first quarter (two months only) of
2012.
139
See H3G Response to the SO, paragraphs 139 and following.
140
At paragraph 69 of the response to the SO, the Notifying Party misrepresents the Commis-
sion's argument in the SO as implying there is a separate market for data over smartphones. It
was, however, clear in the SO that this is not the Commission's position, and that data volumes
are considered as one indicator of the strength of the Parties in post-paid bundles overall.
141
Table 11 is not, based on the information provided by the Parties, able to make a distinction
between pre- and post-paid plans, but if one were to make such a distinction then to the extent
that the Parties are less well represented in pre-paid, their importance in the post-paid voice
enabled segment in terms of data volumes could only be higher. It is however likely that the
vast majority of data over smartphones corresponds to post-paid plans, so that exclusion of
prepaid plans would not be expected to significantly to affect the result. For 2011, post-paid
51
Table 9: Mobile data over voice-enabled devices (megabytes)
Units (MBs)
2009 2010 2011
Operator
m MBs Share (%) m MBs Share (%) m MBs Share (%)
H3G […]* [10-20]*% […]* [10-20]*% […]* [30-40]*%
Orange Austria (excl.
Yesss!)
[…]* [10-20]*% […]* [20-30]*% […]* [10-20]*%
Combined […]* [20-30]*% […]* [40-50]*% […]* [40-50]*%
TA […]* [30-40]*% […]* [30-40]*% […]* [30-40]*%
Yesss! […]* [0-5]*% […]* [0-5]*% […]* [0-5]*%
Combined […]* [30-40]*% […]* [30-40]*% […]* [30-40]*%
T-Mobile […]* [30-40]*% […]* [20-30]*% […]* [10-20]*%
Vectone […]* [0-5]*% […]* [0-5]*% […]* [0-5]*%
Total […]* 100% […]* 100% […]* 100%
Source: Form CO, Annex 6.3, Table 21 subtracted from Table 49
(193) The Notifying Party has argued that these figures are partly influenced by the
tariff structures, especially the offering by H3G of "unlimited" data plans,
142
and therefore are "meaningless" indicators of market strength.
143
(194) The Commission is not, however, arguing that these figures are indicative of
market strength; they are presented, rather, as an indication of market posi-
tioning.
(195) In this regard, Orange appears to be a particularly important competitor. The
progression in H3G's share of total data consumption over smartphones
comes at the expense of TA and T-Mobile, both of whom see their shares
substantially decline. Orange, on the other hand, appears, at least so far, to
have been able to withstand the competition from H3G for this class of user
better.
data excluding dongles was over [90-100]*% of the total data traffic for H3G. For Orange ex-
cluding Yesss, it was [90-100]*%.
142
It should be noted that on 17 October 2012, the H3G website did not offer a smartphone data
tariff without throttling – the highest data use tariff (3Superphone XXL), both with and with-
out handset and lock-in period, offers 6 GB, followed by throttling to 64 kbits per second. For
an additional EUR 3 per month the option "Doppelte Highspeed GB" can be chosen which al-
lows for a double allocation of data, but there is still throttling after the double allocation. It is
only the data-only offerings of H3G which include (but are not limited to) tariffs without
throttling. The Commission considers that it is not clear to what extent smartphone users
would reach the typical usage ceiling of their plan in any case. Moreover, the vast majority of
data traffic on the network (in excess of [80-90]*% in 2011) in any case is used by data-only
devices, making the offering of smartphone data plans with high ceilings relatively inexpen-
sive for H3G in terms of additional capacity load.
143
H3G Response to the SO, paragraph 60.
52
(196) In the Form CO, the Notifying Party offers the explanation that Orange's per-
formance may be related to the co-exclusivity it obtained, together with T-
Mobile, on sales of the Apple iPhone, which expired in Autumn 2010.
144
This co-exclusivity is, in turn, explained by commercial agreements with Or-
ange's parent. While the Commission acknowledges that Orange might have
profited from its parents' exclusive access to Apple's handset, Orange has
meanwhile partnered with Samsung and opened a store in Vienna showcas-
ing Samsung's handsets. Orange therefore seems to continue its path of prod-
uct innovation with regard to telephony hardware despite losing iPhone co-
exclusivity in 2010.
145
(197) It follows that, contrary to what is claimed by the Notifying Party, the Pro-
posed Transaction would bring about a considerable transformation in the
structure of the market precisely in respect of those users who can be ex-
pected to drive a large part of future growth in the voice-enabled segment,
namely smartphone users. According to data from GfK provided by the Par-
ties, almost one in two of the 3.3 million mobile phones sold in Austria in
2011 were smartphones, amounting to a market penetration of 40%; for
2012, the ratio is nearly two in three.
146
(198) The growth in consumer demand for mobile broadband over smartphones is
in very sharp contrast to demand for voice services, which has only grown at
an annual rate of 3.6% over the same period. As a result, it is clear that the
vast majority of new demand is driven by demand for data services and
smartphone handsets which, for many users, are progressively replacing sim-
pler handsets based on older technology. A considerable part of new demand
will therefore be directed towards those providers best able to meet that de-
mand. The position of the Parties in this regard therefore assumes particular
importance and may be expected to signalise their competitive strength in the
offerings of post-paid voice and data bundles in the short to medium term.
(199) Analysis of data from the Parties confirms that data services over smart-
phones represent an important contribution to revenue and that this contribu-
tion continues to grow. Bearing in mind that there are costs which are spe-
cific to voice services such as interconnection costs, this means that data ser-
vices are even more important to the profits of providers.
(200) The Commission requested the Parties to provide unbundled prices for voice,
SMS and data. Orange, in its reply, indicated that it was unable to do so, and
that the price it cited was a price only for out-of-bundle units. It is therefore
not possible to calculate, for Orange, a breakdown of the revenue contribu-
tion from each of the three services without the Commission making certain
assumptions on how to attribute the overall revenue. However, if usage is
considered, the figures provided show that between May 2011 and May 2012
144
Form CO, para 280.
145
See also section 6.5.2.3.
146
Form CO, paragraph 594.
53
the average use of voice and SMS remained quite stable, whereas the use of
data almost doubled.
147
(201) In the case of H3G,
148
data revenues represented in January 2011 [10-20]*%
of the same total, whereas by March 2012 they represented [40-50]*%, that
is to say, more than doubled in their relative contribution to revenue.
149
Rev-
enue from voice and SMS services grew at an average of EUR [0-
1,000,000]* per month (almost all of which is due to outgoing SMS), com-
pared to EUR [1,000,000-5,000,000]* additional revenue per month from
smartphone data, which therefore grew nearly 3 times more quickly than oth-
er revenues.
150
(202) This trend can be expected to continue, as also confirmed by H3G's own
analysis, which states that […]*
151
(203) In response to the SO, the Parties argued that they were unable to reconstruct
the Commission's calculations on this point. The Commission's analysis is
based on the Parties' reply to the RFI of 8 May 2012. The Parties provided an
"effective price" for data per MB, as well as quantities consumed. The prod-
uct of these two values provides the revenue from data. This is compared, for
the post-paid segment, to the revenues from voice and SMS given in the
same source.
(204) This calculation for Orange turned out to be incorrect as it had not provided
the requested unbundled price. The contribution of out-of-bundle data is ir-
relevant to the analysis because it is out of bundle and not the total. However,
H3G did provide such a price. In H3G's reply to the RFI of 8 May 2012, it
raised no concerns about its ability to calculate an unbundled effective price.
Moreover, it would appear that it also produces such an unbundled price for
its own internal purposes. The Financial Reports provided in response to the
Commission's RFI of 4 July 2012 contain such figures in Tab E. The claim in
the response to the SO that "it is not therefore possible to separate the reve-
nues associated with data usage"
152
is therefore directly contradicted by the
evidence H3G itself has provided
153
.
147
Calculations based on Orange financial report for May 2012, provided in response to the
Commission's RFI of 4 July 2012.
148
In the SO, (paragraphs 82-84), the Commission included a calculation of the relative price of
data for Orange and H3G. This calculation was incorrect, as the Orange figure represented
out-of-bundle data only, which is more expensive.
149
The calculation includes international roaming and other (non-specified) sources of revenue.
150
Calculations based on Annex 5.1 to H3G's response to the RFI of 8 May 2012, Doc ID 998.
151
Market Insights. Competition update. Recent Market Research. Document cw 21 (21. –
27.05.2012), provided in response to the Commission's RFI of July 2012, Doc ID 4122.
152
H3G Response to the SO, paragraph 58.
153
As a general matter, it is a routine exercise in management accounting to unbundle revenues
from bundled products using a chosen revenue allocation key (such as the costs of each ele-
ment of the bundle) in order to determine which are the contributions of each of the elements
to revenue and profits. Whilst the allocation key may be chosen in different ways, the Com-
mission's calculations here rest on data provided by H3G using, one would assume, the same
methodology as used for internal management accounting purposes (and therefore generated
54
(205) In any case, as data consumption increases for both Parties relative to voice
consumption, and there is a fixed relationship between them in terms of net-
work usage, the statement that revenues due to data are increasing as a pro-
portion of the whole is robust to any reasonable revenue allocation method.
In this respect, the data calculations confirm a conclusive trend in the market.
(206) The Commission therefore takes the view that the position of the Parties in
data services over voice-enabled (as well as data-only) devices needs to be
given particular weight in assessing the impact of the Proposed Transaction
on the relevant market.
154
6.5.2.2.2. Data-only segment
(207) When looked at on the basis of data volumes over dongles, H3G represents a
considerably greater proportion of overall data traffic than its market share
on the basis of subscribers would suggest. This shows that the typical H3G
customer has a distinctively intensive usage pattern. Orange, on the other
hand, is the only MNO whose data traffic has been relatively static over
2009-2011, resulting in a diminishing proportion of the overall total.
Table 10: Data only volume
Units (MBs)
2009 2010 2011
Operator
m MBs Share (%) m MBs Share (%) m MBs Share (%)
H3G […]* [30-40]*% […]* [30-40]*% […]* [50-60]*%
Orange
Austria
(excl.
Yesss!) […]* [10-20]*% […]* [10-20]*% […]* [5-10]*%
Combined […]* [50-60]*% […]* [50-60]*% […]* [50-60]*%
TA […]* [20-30]*% […]* [20-30]*% […]* [20-30]*%
Yesss! […]* [0-5]*% […]* [0-5]*% […]* [0-5]*%
Combined […]* [20-30]*% […]* [30-40]*% […]* [30-40]*%
T-Mobile […]* [20-30]*% […]* [10-20]*% […]* [10-20]*%
Total […]* 100% […]* 100% […]* 100%
in tempore non suspect, that is information gained when the one who gives the information
has nothing to gain by not telling the truth).
154
It should also be borne in mind that the definition of postpaid in the data segment includes
certain types of plan, like A1's bob, which although technically postpaid do not feature lock-in
periods and handset subsidies and thus are more comparable to pre-paid in their target cus-
tomer base. The Commission's view is that this type of service is likely to compete for a dis-
tinct segment of demand and ideally the analysis would be carried out on contract bundles on-
ly. However, for reasons of data limitations it has not been possible to make this distinction in
the figures used in this Decision.
55
Source: Form CO, Table 21
(208) The Parties' figures in the Form CO, if correct, would imply the figures in
Table 11 for data use per installed dongle/datacard in absolute terms and
relative to the average in the market.
Table 11: Private mobile broadband (data use per installed dongle)
MB per dongle
2009 2010 2011
Operator
MBs relative MBs relative MBs relative
H3G […]*
[100-
110]*%
[…]*
[140-
150]*%
[…]* [160-170]*%
Orange Austria (excl.
Yesss!)
[…]*
[200-
210]*%
[…]*
[200-
210]*%
[…]* [150-160]*%
Combined […]*
[120-
130]*%
[…]*
[160-
170]*%
[…]* [160-170]*%
TA […]* [70-80]*% […]* [90-100]*% […]* [80-90]*%
Yesss! […]* [20-30]*% […]* [30-40]*% […]* [30-40]*%
T-Mobile […]* [80-90]*% […]* [70-80]*% […]* [50-60]*%
Market average […]* […]* […]*
Source: Annex 6.3 to Form CO, sum of tables 29 and 44, divided by Table 21
(209) Using the figures provided in the response to the RFI of 4 July 2012, the av-
erage use of an Orange datacard would be much closer to the average for the
rest of the market, that is to say, 10,230 MB.
(210) On either calculation, the use made of an H3G dongle would have almost
tripled over the period 2009–2011 whilst that of a T-Mobile dongle would
have remained nearly constant. However, it seems unlikely that the level of
use of an H3G dongle by existing subscribers should have increased so sig-
nificantly over the period 2009–2011, whilst its share in number of subscrib-
ers remained largely unchanged. This is hard to reconcile with the claim that
T-Mobile increased its number of subscribers despite the fact that the attrac-
tiveness of using its dongles remained stable (that is to say, declined in rela-
tive terms). This provides a further indication that the Parties have overesti-
mated the market share in terms of number of dongles of T-Mobile.
(211) In this market segment, H3G is already the largest provider by a significant
margin by volume and it would become even more important after the Pro-
posed Transaction with the additional increment of around [10-20]*% from
Orange. Both also continue to be dynamic competitors as they continue to
gain shares in the segment […]*
(212) In response to the SO, H3G argues that "In light of H3G's flatrate offer, it
cannot be surprising that there is much more data traffic over H3G dongles
than over T-Mobile dongles."
155
(213) In support of the first point, H3G adds that "[the high share measured by
data volume] merely reflects that H3G accounts for a high proportion of da-
155
Response to the SO, paragraph 75, second indent.
56
ta-intensive customers as a consequence of the fact that H3G is the only op-
erator in Austria who offers an unlimited data flat tariff. If anything, the cor-
responding large data consumption on its network is only a burden for H3G,
but does not provide it with any competitive advantage or even market pow-
er. H3G does not receive additional revenues from this usage nor does it re-
sult in a larger number of subscribers."
156
(214) Whilst it is true that H3G has made the commercial choice to appeal to po-
tentially intensive data users by offering a data only tariff without throttling,
it has provided no information to support the view that the offering of this
tariff affects the quantity of data which a consumer chooses to use, much less
that it is a "burden". Flat rate customers represent a proportion of H3G's total
data customer base which continues to grow (Dec 2011: [20-30]*%). H3G
also offers a cheaper tariff limited to 10 GB per month, which is well in ex-
cess of the average calculated in Table 12 which corresponds to only 2.8 GB
per month. This tariff would therefore seem objectively likely to be sufficient
for most customers (whether or not it is the tariff they actually choose).
157
This is entirely comparable with the cheapest tariff of T-Mobile, "All Inclu-
sive Internet 3G", which offers a 10 GB allowance followed by throttling.
158
(215) The average actual use of customers on a flat rate plan is not that much high-
er than this threshold, at 12.6 GB per month.
159
Even if one were to make the
assumption that these customers, in the absence of a flat rate plan, would re-
main within a reasonable margin of the 10 GB threshold, for example using
only half what they currently do, so an average of 6.3 GB per month, H3G
would still have carried […]* MB in 2011, which would have been [30-
40]*% of the total (with Orange an additional 10%).
(216) H3G also argues in the response to the SO that "the Commission speculates
that H3G has over-estimated the dongle share of T-Mobile. H3G does not
know how many dongles T-Mobile sold and the figure provided was an esti-
mate. H3G is astonished that, after almost five months of investigation, the
Commission should raise such a point of fact so late in the process particu-
larly given that the Commission has tools at its disposal to request from T-
Mobile the number of dongles sold on the market. If the Commission had
doubts about the H3G estimate it should (acting reasonably and in accor-
dance with its duty of good administration) have asked T-Mobile to provide
the accurate figure."
160
H3G goes on to state that "Further, the Commission
does not seem to have taken account of the high share of business customers
accounted for by T-Mobile which may also contribute to explain the lower
156
H3G Response to the SO, paragraph 77.
157
Calculations for 2011 based on the data provided by H3G in response to the Commission's
RFI of 4 April 2012. This data further shows that flat rate subscribers represented, for 2011,
[20-30]*% of revenue and [60-70]*% of network usage.
158
Information from www.t-mobile.at (retrieved on 23 October 2012).
159
Calculations for 2011 based on the data provided by H3G in response to the Commission's
RFI of 4 April 2012.
160
H3G Response to the SO, paragraph 75, third indent.
57
usage of T-Mobile dongles since business customers include the "datalight"
machine-to-machine (M2M) usage of dongles"
161
.
(217) In this regard, it should first of all be noted that, in order to carry out a cor-
rect assessment of the Proposed Transaction, the Commission relies on the
accuracy of the data provided by the Parties, which should make all neces-
sary distinctions in order to allow that data to be correctly and meaningfully
interpreted. The Commission notes that both H3G and Orange offer M2M
services, and has no particular reason to believe that T-Mobile should be es-
pecially strong in this regard, a fortiori not to such an extent as to have a ma-
jor impact on the calculated figures.
(218) The Commission did ask T-Mobile for information in order to check the es-
timates of the Parties. That information is consistent with its conclusions that
the Parties overestimated T-Mobile's share, but was not required in order to
draw that conclusion. The information provided by T-Mobile constitutes a
commercial secret of the latter and the measures which would have been re-
quired to use the data would have been disproportionate to any benefit from
doing so. The data was therefore not presented as evidence in the SO, and is
not presented as evidence in this Decision.
(219) In the response to the SO, H3G goes on to claim that "alternatively, the
Commission could contact the RTR which has already collected this data".
162
(220) The Commission put this claim to the RTR, and it turned out that it is incor-
rect. The RTR informed the Commission that "RTR collects following data:
Number of subscribers having a data only tariff (without voice & SMS) in-
cluding a data volume of at least 250 MB per month. There is no additional
distinction in the data collection questionnaire between dongles and data
cards."
163
Therefore, not only does the RTR not have the data which the Par-
ties claim it should have, but in fact it collects, on a confidential basis, data
for a wider data-only segment, just as the Commission requested from the
Parties but was told they could not provide.
164
(221) H3G goes on to state that "should the Commission wish to rely on this objec-
tion in its final decision, H3G requests, in accordance with its rights of de-
fence, to be able to provide written comments on this objection".
165
(222) H3G has no need to request permission to provide written comments on this
or any other element of the Commission's evidence and reasoning. It has
done so in response to the SO and remained free to do so during the remain-
der of the procedure. Its rights of defence have therefore been fully re-
spected.
161
H3G response to the SO, paragraph 77.
162
H3G response to the SO, paragraphs 77 and following.
163
Email of RTR dated 19 October 2012, non-confidential version of 24 October 2012.
164
See footnote 97 to the Form CO.
165
H3G response to the SO, paragraphs 77 and following.
58
6.5.2.3. Results of market investigation
(223) On the basis of the market investigation, the Commission considers that in
terms of pricing and tariff structures and as regards smartphones and data
services, Orange and H3G are close competitors, and on some important di-
mensions are particularly close. In 2011, H3G and Orange generated [50-
60]*% and [60-70]*%, respectively, of their revenues in the private post-paid
segment, suggesting that their most important tariffs fall into that segment.
166
This already suggests that they offer similar products in the sense that a large
fraction of the Parties' tariffs is geared towards similar customer groups.
(224) During the Phase II market investigation the Commission sent a question-
naire to H3G and Orange's distributors and resellers asking them who they
consider the leader in a number of different categories.
167
(225) In the categories of flexible tariffs and residential customers, Orange came
second (after H3G). Orange also came second after H3G in terms of overall
satisfaction. Also, when asked which is the closest competitor to Orange, the
majority of distributors and resellers who responded, replied it was H3G in
terms of offer quality, low prices, flexible tariffs, residential customers, cus-
tomer service (together with A1) and overall satisfaction. The only areas
where another MNO was perceived as a closer competitor than H3G was "of-
fer for business customers", where A1 was perceived as the closest to Orange
(logically, as H3G is not very active in the business segment), marketing,
where T-Mobile was perceived as the closest to Orange and network quality,
where A1 was perceived as the closest to Orange.
(226) The Commission also asked distributors and resellers which MNO is the
closest competitor of H3G in the same categories. The majority of respon-
dents considered that Orange was H3G's closest competitor in terms of low
prices, flexible tariffs and residential customers.
(227) These elements indicate that H3G and Orange are perceived by the industry
as particularly close in relation to tariff flexibility, pricing and residential
customers.
(228) In response to the SO, the Notifying Party argues that H3G and Orange "pur-
sue entirely different handset subsidy policies" and that while deep subsidies
are important for H3G, Orange "focuses very much on SIM-only tariffs and
sells two-thirds of its post-paid handset tariffs in this segment".
168
(229) This claim goes well beyond what was set out in the Form CO, and appears
to be a recent initiative by Orange. It is in any case the perception of close-
ness by customers which is decisive.
(230) In the Form CO, H3G only said that "in relation to premium Smartphone
customers, H3G considers that T-Mobile is the operator who, besides H3G,
166
See also section 6.4.3.2.
167
See results of "Q3- II – Fragebogen an Distributoren und Wiederverkäufer" of 11 July 2012,
Doc ID 4333.
168
Response to the SO, paragraph 120, final indent, and paragraphs 150–156.
59
is most focussed on this segment with aggressive price packages (including
handset subsidies) and thus arguably a closer competitor to H3G than, for
example, Orange in this respect".
169
They also describe handset subsidies as
one of "many factors that are constantly changing in the market place".
170
(231) Based on Annex 6.11 to the Form CO, H3G argues only that "Orange has a
higher percentage of SIM only tariffs available".
171
That annex appears in-
correct, as it shows none of the other operators having SIM-only tariffs at all,
although all of them, including H3G, do. In any case, no conclusions can be
drawn based simply on the number of tariffs offered.
(232) The Commission also notes the recent opening by Orange of a flagship retail
outlet cobranded with Samsung (currently one of the leading handset produc-
ers) in Vienna.
172
This is hardly proof either of a firm in decline on the high-
end handset market or of one having abandoned the retail of handsets as a
significant element within its business model.
(233) In the event that Orange had durably changed its business model towards
SIM-only, it would be able to rationalise its distribution network considera-
bly, since distribution outlets are particularly important to showcase hand-
sets. There is no evidence of any plans in this direction, nor indeed of any
decision by the Orange board to implement a strategic reorientation (as op-
posed to, for example, a simple commercial initiative responding to a particu-
lar, possibly temporary, perceived opportunity).
(234) Moreover, closeness of competition between the Parties does not require
them to be selling identical products. Products may be very different, and
still constrain each other significantly. In the case of SIM-only tariffs, these
may be purchased for use with an existing handset which is out of contract,
or the handset can be procured separately. In the latter case, the customer is
able to reconstitute the product offering of bundled handset and tariff, and
make a choice between the upfront financing required by separate handset
procurement and the financing facility offered by a bundled tariff.
(235) It follows that the information put forward by the Notifying Party regarding
the Parties' respective business strategies does not alter the assessment of the
competitive impact of the Proposed Transaction.
6.5.2.4. Internal documents
(236) On 15 June 2012, the Commission sent an RFI to H3G and Orange request-
ing internal documents which discuss, amongst other things, the closeness of
competition between the two Parties. A number of documents submitted in
169
Form CO, paragraph 204 (emphasis added).
170
Form CO, paragraph 252.
171
Form CO, paragraph 255.
172
See http://www.vienna.at/samsung-und-orange-eroeffnen-shop-am-stephansplatz/3384574;
http://diepresse.com/home/techscience/hightech/1300602/Samsung-auf-Untermiete-bei-
Orange-in-der-Wiener-City;
http://wirtschaftsblatt.at/home/nachrichten/oesterreich/1299936/Duell-Samsung-gegen-Apple-
im-Wiener-Zentrum (retrieved 12 November 2012).
60
response to that request for information provide evidence that H3G considers
Orange as a close competitor.
(237) Internal surveys, provided by the Parties, establish that customers perceive
Orange and H3G to be close competitors.
173
Notably, consumers identify both
H3G and Orange to be innovative players which set trends in the market.
(238) Figure 5 and Figure 6, drawn from internal documents of the Parties, are il-
lustrative in this regard.
Figure 5: Limbic map, Positionierung der Marken
[…]*
Source: H3G Reply to RFI of 4 July 2012, Annex e (Confidential), Brand Personality.ppt,
slide 18.
(239) […]*
174
Figure 6: Positionierung – Ergebnisse einer Korrespondenzanalyse
[…]*
Source: […]*
(240) Figure 6 shows another perception of Orange's brand in the market which,
once again, overlaps only with that of 3.
(241) In the response to the SO, H3G argues that "this type of material can have no
evidential value in a phase II merger control proceeding. The Commission's
assessment must rely on objective and verifiable facts. The market research
analysis is unscientific, subjective and largely speculative nature."
175
(242) The Commission does not agree with H3G's characterisation of the market
research analysis. H3G devotes a significant budget to this kind of analysis,
which suggests it is considered to convey important commercial information.
(243) H3G goes on to argue that "the extent to which brand is a relevant factor in
the purchasing decision of customers is a question of the types of products
173
[…]*
174
The Limbic Map is a tool created by the branding consultancy Nymphenburg and based on
principles of neuromarketing. Its creators state that "successful brand management means that
only brands which occupy in the mind of the consumer a clear emotional field are able suc-
cessfully to prevail against the competition. The experienced emotional core of a brand con-
sists in the sum of motivations which consciously or unconsciously are addressed by the brand
and brand communication. Limbic® makes it possible to illustrate successful positioning, to
show overlaps in positioning, and to identify relevant differentiation vis-à-vis the competition.
Emotional brand positioning and relevant differentiation are the basis to translate the brand
into strategic and operational marketing and defines the presentation of the brand and the de-
rived communication strategy" (Commission's translation). See
http://www.nymphenburg.de/branding.html
(retrieved 24 October 2012). The scientific basis
for and influence of these factors on the purchase decision is described in an article by leading
neuromarketing practitioner Dr Hans-Georg Haeusel, see
http://www.nymphenburg.de/tl_files/pdf/LimbicScience110220.pdf
(retrieved 24 October
2012).
175
H3G Response to the SO, paragraph 101.
61
concerned. There are certain highly differentiated industries in which brand-
ing plays an important role, for example cars or clothes. Mobile telecommu-
nications services is not such an industry. Advertising is essentially focused
on pricing, tariffs and network quality. These criteria, and not brand posi-
tioning, are the primary drivers of the purchasing decision."
176
(244) The Commission considers that these statements fail to recognise how brands
are formed and contribute to the purchasing decision of consumers. Branding
is valued by firms because it conveys information about the perceived value
proposition of a product and influences the choice of consumers who are
usually insufficiently informed and do not have the time to research all the
characteristics of the product. Customers may not even realise this is the
case.
177
The fact that consumers may not acknowledge that brand is impor-
tant does not necessarily mean that it is not an important factor in their pur-
chasing decision.
(245) Branding does not only concern luxury and status goods, as the Parties seem
to imply. Rather, it concerns the relationship between the product and the
customer and is part of the mental map which consumers use to navigate the
purchase decision.
178
All of the characteristics cited by the Parties as deter-
mining consumer choice are therefore in fact part of the brand. This is be-
cause consumers usually do not know the real value of all the variables im-
portant to them, or even what variables are important and how to evaluate
them: they have a perception and decide on this basis. Indeed, H3G very vis-
ibly insists on its network quality as a core component of its brand, doubtless
well aware that "among all brand associations, only perceived quality has
been shown to drive financial performance" and that indeed it is "the single
most important contributor to a company's return on investment, having
more impact than market share, R&D, or marketing expenditures".
179
The
importance of network quality to individual customers will vary, and there is
no single measure of product quality on which all consumers will agree.
(246) Indeed, the importance of brand in the mobile industry is particularly well-
known to Hutchison, which created the Orange brand and subsequently sold
it to Mannesmann in 1999. Orange – with its well-known brand slogan "The
future's bright, the future's Orange" was described at the oral hearing by
HWL
180
as "the iconic mobile phone brand".
181
At the time, Mannesmann
176
H3G Response to the SO, paragraph 103.
177
See for instance G. Zaltman, How Customers Think (2003).
178
See for instance Chaudhuri and Holbrook (2001), "The Chain of Effects from Brand Trust and
Brand Affect to Brand Performance", Journal of Marketing, April 2001, p. 81.
179
D.A. Aaker 1996, Building Strong Brands, p.17
180
Presentation "Hutchison's investment in Europe and 3G as market challenger" by Christian
Salbaing, Deputy Chairman Hutchison Whampoa (Europe) Limited.
181
See Izbicki 2000, "Orange International: The Creation of a 21st Century Patent", available at
http://the-
sea.com/The_SEA_Innovation_Branding_Service_Product_Design/news/Entries/2011/1/10_C
reation_of_a_21st_Century_Patent_-
_Gold_Ward_IPA_Effectiveness_for_Orange_International_files/Orange%20–
%20IPA%20case%20study%202000.pdf (retrieved 24 October 2012).
62
chief executive Klaus Esser said the purchase of Orange would give his
company "the strongest mobile brand in Europe."
182
(247) The confidence expressed by H3G in the value of brand is confirmed by
leading business scholars. In his classic textbook, Philip Kotler states "The
most lasting and sustainable meanings of a brand are its core values and
personality".
183
(248) It follows that the proximity between the Parties depicted in Figure 6 sug-
gests that many customers would have a tendency, all other things being
equal, to view them as first and second choice, and be less willing to switch
to the remaining competitors. It is not conclusive in this regard, as significant
switching is also observed from and to the other competitors in the market.
But it nonetheless shows a level of overlapping brand preference which is
currently likely to act as a constraint on the pricing of the Parties and which
would be eliminated by the merger. Indeed, given that Orange was itself a
brand created by HWL, this similarity is not surprising.
6.5.3. Conclusion
(249) The Commission therefore concludes that the available qualitative evidence
is consistent with the direct evidence furnished by the observed diversion ra-
tios and supports the conclusion that the degree of such closeness, together
with the other evidence presented in this Decision, is such as to predict a sig-
nificant impediment to effective competition as a result of the merger.
6.6. H3G as important competitive force (Pre-merger v. Post-merger)
(250) The Commission also assessed the competitive strength of H3G on the rele-
vant markets, its current relevance as a competitive force and whether the
Proposed Transaction would limit its incentives to continue to operate as an
equally important competitive force in the future.
6.6.1. The view of the Notifying Party
(251) The Notifying Party submits that H3G has been increasing its market share
gradually to [10-20]*% since its market entry in 2002. However, it argues
that H3G is overall not a more important competitive force than any of its
competitors who are acting similarly aggressively on the Austrian mobile
market. In its view, all MNOs participate actively in a battle for market share
and no one is consistently more price aggressive than the others in all seg-
ments all the time. Rather, the MNOs each have different strategies for dif-
ferent purposes which themselves change from time to time.
(252) According to the Notifying Party, H3G puts particular focus on the data seg-
ment whereas tele.ring and Orange have a stronger focus on the voice seg-
182
See The New York Times, 22 October 1999, available at
http://www.nytimes.com/1999/10/22/business/worldbusiness/22iht-orange.2.t_0.html
(re-
trieved 24 October 2012). When Vodafone acquired Mannesmann, it was required to sell on
Orange, which was acquired by France Telecom and became its core mobile brand interna-
tionally.
183
Kotler et al, Principles of Marketing, 3
rd
European edition 2002, p.470.
63
ment.
184
In respect of its data offering, as well as in offering smartphone sub-
sidies, H3G's offer is more aggressive than any of its competitors (with the
possible exception of T-Mobile). On the other hand, the lack of its own 2G
network gives H3G a cost disadvantage in targeting parts of the voice seg-
ment. Therefore, H3G is not the lowest priced competitor across all seg-
ments.
(253) The Notifying Party submits that, after the merger, the competitive con-
straints exercised by H3G on the market would increase, because it has clear
incentives to continue its growth strategy. Furthermore, the Proposed Trans-
action would increase H3G's ability to win new subscribers; it would im-
prove its coverage and network quality and bring about a faster roll out of
LTE. Therefore, the Notifying Party submits that it would have all the neces-
sary economic incentives to continue pursuing its growth strategy after the
merger.
6.6.2. The Commission's assessment
6.6.2.1. Current competitive strength of H3G
(254) The Commission considers that the incentive to offer low prices depends
inter alia on the existing customer base and on the number of new customers
(and contract extensions) that an MNO expects to attract in a given time pe-
riod.
(255) While lower tariffs (or subscription plans with higher usage limits and more
features included) will attract more new subscribers, they typically also im-
ply a lower profit margin per subscriber. An MNO that expects to acquire a
larger share of new customers will therefore have a lower incentive to sacri-
fice profits on infra-marginal new customers in order to attract more new
customers overall. Therefore, MNOs that expect to have more new customers
will also offer less aggressive tariffs so as to earn a higher profit margin.
(256) At the same time, the incentives for an operator to attract new customers by
offering aggressive prices depend on the size of the customer base as the
Commission noted in its Decision in case COMP/M.3916 – T-
Mobile/tele.ring.
185
Attracting new customers by bringing out new offers and
adopting an aggressive pricing policy will reduce the profitability of the ex-
isting customer base over time as those tariffs and conditions will also have
to be extended to existing customers.
186
(257) As already set out in the Decision in case COMP/M.3916 – T-
Mobile/tele.ring, this "effect is not necessarily felt immediately: for a certain
184
See Form CO, paragraph 296 and following.
185
See Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring, paragraphs 74 and following.
186
The finding of significant switching costs in the mobile industry, and as a result of consumer
inertia, has been described and measured in Kim (2012) "Dynamic switching decisions of con-
sumers in the cellular service industry", available at
http://www.kea.ne.kr/conf201206/papers/Kim%20Jiyoung-20120611.pdf
(retrieved 24 Octo-
ber 2012). The author finds a significant tendency for customers to remain with their incum-
bent provider even if it would be beneficial to switch providers.
64
period it is possible to differentiate between tariffs for new customers and
tariffs for existing customers (particularly where offers are confined to tem-
porary benefits, such as a discount on the standing charge or an increase in
airtime for the first few months). In time, however, lower tariffs for new cus-
tomers always have medium-term implications for the customer base, as ex-
isting customers will not tolerate discrimination".
187
Hence, if existing cus-
tomers whose minimum contract duration has already ended realise that their
MNO offers very attractive tariffs, this may induce them to switch to those
new offers. "So, the bigger the customer base, the less likelihood of low price
offers aimed at attracting new customers, as the threat of lost income from
existing customers would no longer be offset by the additional income to be
expected from new customers. Moreover, once a network operator has a cer-
tain number of customers, the flow of revenue from the existing customer
base allows it to recover its investment in building up the network and its
network operating costs".
188
(258) The aggressive commercial policy of H3G hitherto is evidenced by its lower
margins (discussed in section 6.8) as well as its success in attracting data-
intensive users in both the smartphone and data-only segments as set out in
section 6.5.2.2.
(259) In the past, it may be considered that H3G chose to adopt an aggressive pric-
ing policy inter alia for two reasons. First, H3G could not expect to obtain a
large proportion of contestable customers. Secondly, a relatively small cus-
tomer base presumably implied that new customers attracted by H3G's offers
always more than offset any price cuts which in due course would have
needed to be offered to existing customers (bearing also in mind that industry
unit costs are declining).
6.6.2.1.1. Internal documents
(260) The Commission has also examined whether the claims by the Notifying
Party are consistent with the evidence contained in the internal documents
which it provided in the course of the market investigation.
(261) The review of the internal documents confirmed that H3G is currently com-
peting aggressively on prices and that the […]*.
189
In particular, according to
another internal document as regards post-paid voice services […]*.
190
(262) H3G is further associated with the best network, lowest drop rate and non-
accessibility and the best speech quality.
191
187
Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring, paragraph 77.
188
Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring, paragraph 77.
189
See H3G Response to RFI of 15 June 2012 (questions 1 and 2a-e) – 11-09-09 Chairman Pres-
entation final, slides 46, 47, Doc ID 2574.
190
See H3G Response to RFI of 15 June 2012 (questions 1 and 2a-e) – 16-05-12 Chairman Pres-
entation_final1, slides 51–56 (Doc ID 2698).
191
See H3G Response to RFI of 15 June 2012 (questions 1 and 2a-e) - 11-10-13 CF_Network
v02, Doc ID 2580.
65
(263) Furthermore, consumers experience H3G as a "modern, innovative" MNO
which is involved in new technologies
192
For example, H3G was an early
mover in the roll-out of LTE and the launch of innovative broadband services
such as mobile TV and mobile video on demand (VoD) services.
(264) The success of H3G's data-focused strategy is evidenced by the fact that H3G
is the only Austrian MNO that has been growing continuously since it en-
tered the market, at the expense of all other MNOs, having achieved a market
share of [10-20]*% today compared to less than 5% at the time of the Com-
mission's tele.ring decision in 2006.
6.6.2.1.2. Conclusions on H3G as an important competitive force
(265) The Commission considers that H3G is currently a significant competitive
force driving competition on the Austrian mobile telephony market and that
it has "more of an influence on the competitive process than [its] (…) market
share (…) or similar measures would suggest".
193
6.6.2.2. Impact of the Proposed Transaction on H3G's incentives to compete
(266) The Proposed Transaction would eliminate the presence of two relatively
small MNOs which are both winning a disproportionately large share of new
customers, and create a new much bigger MNO with significantly changed
incentives. In the past, H3G has expanded its customer base by offering in-
novative services and high end handset subsidies and Orange has (at least re-
cently) also adopted an aggressive positioning on the market.
194
H3G and
Orange (without Yesss!) had [10-20]*% and [10-20]*% of private customer
subscriber shares respectively in 2011, while TA (including Yesss!) had [40-
50]*% and T-Mobile [30-40]*%. The Proposed Transaction would more than
double H3G's customer base from [0-2]* million to [2-4]* million subscrib-
ers and would bring H3G to the forefront of MNOs in terms of subscribers.
(267) After the merger, the merged entity would probably have reduced incentives
to compete aggressively. First, the merged entity would expect to obtain a
larger share of new customers and would therefore have less incentive to sac-
rifice profits on infra-marginal new customers in order to attract more of
them. This effect is analysed in more detail and quantified for the private
post-paid segment in Section 6.8. At the same time, through the merger the
merged entity would expand its installed base of customers on which it
would wish to protect its supra-competitive margin. This may dampen incen-
tives to offer attractive tariffs in order not to run the risk of encouraging ex-
isting customers who are no longer locked into contracts to switch to cheaper
tariffs. For both reasons, the gains from behaving more aggressively in terms
192
See Brand Tracking (2008), Brand Tracking Wave 13_CATI, slide 40 and 49 (resp. voice and
data) (H3G Confidential), Doc ID 4118 and Brand Tracking wave15 gesamt, slide 127, Doc
ID 4119.
193
See Horizontal Guidelines, paragraph 37.
194
See Transcript of TA May 2012, http://www.telekomaustria.com/dateien/transcript-qu1-
2012.pdf: "Orange are also selling these very cheap offers. It is either EUR 7.50 or EUR 8 and
so that is really, really cheap, I believe too cheap for the market" (retrieved 24 October 2012).
66
of prices or output would be reduced after the merger. These predictions are
consistent with and corroborated by a number of internal documents of the
Parties.
195
(268) The Parties argue that the MNOs' incentives would be fundamentally driven
by the MNOs' cost structure and the gains from fully exploiting their capac-
ity. Furthermore, MNOs could target new customers with new tariffs that
would not be easily comparable for their existing customers. Moreover, the
alleged cannibalisation effect would not apply to existing customers that are
not contestable at a given point of time.
196
(269) While it is true that the tariffs offered by the MNOs are affected by factors
such as cost structure or possibly spare capacity,
197
this by no means implies
that the changes in the share of new and existing customers would not also
affect the competitive incentives of the merged entity.
(270) The Parties furthermore do not bring forward convincing arguments why old
tariffs would be difficult to compare to new tariffs. Moreover, it appears im-
plausible that there are consumer characteristics not already targeted by ex-
isting offers based on which MNOs could discriminate between existing and
new subscribers.
198
(271) The theoretical prediction of a change in incentives to aggressively compete
is supported by a number of internal documents. In the SO,
199
the Commis-
sion assessed a presentation submitted by the Notifying Party, entitled "H3G
– Acquisition of Orange Austia"
200
which sets forth the rationale of the Pro-
posed Transaction. According to it, through the merger, H3G wants, among
other things, to [the following part of the sentence discusses the effects of the
Proposed Transaction in H3G's view].
201
(272) In the reply to the SO, H3G claims that the statement […]*
202
[…]*
203
195
See Section 6.5.2.4.
196
H3G Response to the SO, paragraph 197.
197
Effects of cost changes and capacity changes are discussed in Section 7 on efficiencies.
198
If MNOs had indeed the ability to win consumers without cannibalising infra-marginal cus-
tomers (reducing profits on those customers which would anyway have chosen the MNO in
question at the existing price level, but who, as a result of the promotion, can now benefit
from a lower price than they would have been willing to pay), then according to economic
theory there would be extremely fierce competition for customers and MNOs wouldn't be able
to recover their investment costs. This however appears inconsistent with the observation that
many MNOs generate positive EBIT (earnings before interest and taxes).
199
SO, paragraph 167.
200
See H3G Response to RFI of 15 June 2012 (questions 1 and 2a-e) – 11-07-11 Chairman Pres-
entation final: [the following part of the title of the presentation describes the effects of the
Proposed Transaction in H3G's view], slide 68, Doc ID 2571."
201
As set out in the response to the SO, paragraph 204, a possible "reduction of competition in
the upcoming auction" in itself does not necessarily imply a negative impact on the mobile
communications end consumer market.
202
H3G Response to the SO, paragraph 204.
203
H3G Response to the SO, paragraph 204.
67
(273) The Parties' explanations do not change the Commission's understanding of
the statements mentioned in recital (271). First, it appears implausible that
H3G would refer to H3G's own business becoming larger by pointing to […].
Second, the explanation provided corroborates the Commission's concern
that H3G will have less need for organic growth after the merger and will
therefore tend to compete less aggressively instead of pursuing the ambitious
targets of its business plan through organic growth and thereby exerting con-
siderable competitive pressure.
(274) Moreover, the Parties set out that the reference to EBITDA (earnings before
interest, taxes, depreciation, and amortization) in the presentation
204
does not
provide evidence for an increase in prices post-merger because (i) significant
costs that drive the pricing incentives are recorded in the CAPEX (capital
expenditure) accounts (which are not reflected in the EBITDA) and (ii) the
cited figures refer to the stand-alone case and therefore are not indicative of
the Parties' expectations post-merger.
(275) These counterarguments appear unconvincing given that the cited EBIT
(earnings before interest and taxes) figures, which contain depreciation
charges on CAPEX, exhibit a similar growth as the cited EBITDA figures.
Moreover, an internal Excel file "BM 1+13 110610_out_2.xlsx"
205
contains
the same figures as the cited presentation.
206
From these, it is apparent that
the abbreviation "CONS" used in the presentation refers to the merged entity,
contrary to the claim of the Parties that it refers to the stand alone cases.
(276) The Commission's concern that the merged entity intends to grow at a slower
pace than both merging firms in the absence of the merger is further corrobo-
rated by the Parties' statement that "H3G expects revenue dis-synergies"
207
which is also evident from H3G's internal computations, most notably in a
file
208
submitted as an Annex to the reply to the SO. From its sheet "JPM
Case v91 Budget 2011" it is evident that by 2016, the merged entity plans to
acquire more than 1.2 million customers less than H3G and Orange (exclud-
ing Yesss!) in a stand-alone scenario. Importantly, it is not decisive whether
the merged entity suffers from "dis-synergies" of 1.2 million customers be-
cause of price increases (relative to the stand-alone scenario) or because cus-
tomers perceive the offers of the post-merger brands to be less valuable (pos-
sibly because of less diversity of brands and tariffs) than those of the merging
firms in a stand-alone scenario. What matters is that the joint offer will be
less attractive so that the Parties expect to acquire fewer customers than in
the absence of the merger.
204
[…]*
205
H3G Response to RFI of 15 June 2012 (questions 1 and 2a-e) – BM 1+13 110610_out_.xlsx,
Doc ID 3019, sheet "Merger Case".
206
See H3G Response to RFI of 15 June 2012 (questions 1 and 2a-e) – 11-07-11 Chairman Pres-
entation final: […]*, slide 68, Doc ID 2571.
207
H3G Response to the SO, footnote 201.
208
[…]*, Doc ID 6207.
68
(277) […]*
209
[…]*
210
[…]* the Commission considers that these computations
show that H3G contemplates that the merger may lead to higher prices rela-
tive to the stand alone scenario.
(278) These documents may be qualified as an indication that the Parties expect
less competition post-merger. It also demonstrates that H3G's incentives
would change after the merger and be expected to lead to less competition on
the market for the provision of mobile telecommunications services to end
customers. This is even more relevant as H3G has substantially increased its
market share in previous years in relation to its competitors. A reduced need
for organic growth may lead to less aggressive competitive behaviour by
H3G.
(279) In a submission by H3G's economic advisors in response to the (alleged)
"structural presumption" in the Article 6(1)(c) decision, the Notifying Party
argues that "as soon as H3G becomes capacity constrained, it will have little
incentives to lower prices, as it will be unable to increase output" and that
this is "relevant for the counterfactual scenario the Commission should con-
sider".
211
(280) The Commission further notes that, if H3G were about to hit a capacity ceil-
ing, this would rationally already be reflected in its pricing and tariff offers
given that these engage capacity at least two years forward. However, there
is no evidence that this has occurred in practice. Indeed, the proportion of
H3G's customer base made up of flat rate data-only customers continued to
grow through March 2012, as did their contribution to revenue, as shown in
Figure 7 (month 60 on the x-axis corresponds to Dec 2009, month 87 to
March 2012).
Figure 7: H3G's customer base made up of flat rate data-only customers
[…]*
Source: Commission calculations based on Annex 3.1 of H3G's reply to the RFI of 4 April
2012
(281) This development took place notwithstanding that the average monthly reve-
nue from flat rate data subscribers fell more rapidly than the average for data
subscribers as a whole.
Figure 8: Average monthly revenue from flat rate data subscribers
[…]*
Source: Commission calculations based on Annex 3.1 of H3G's reply to the RFI of 4 April
2012
(282) The claim that in the absence of the merger there would be a significant re-
duction in H3G's ability to compete aggressively on the market and that such
reduction constitutes the relevant comparison for evaluating the effects of the
merger can therefore not be sustained.
209
[…]*, Doc ID 6207.
210
[…]*, Doc ID 6207.
211
Paragraph 4.6 of the submission of 10 September 2012 on the "structural presumption".
69
6.6.3. Conclusion
(283) The Commission considers that H3G is an important, if not the most impor-
tant, competitive force in the market and that its incentive to remain a driving
force, in the absence of substantiated efficiencies, would be reduced after the
transaction.
(284) Moreover, there is a strong expectation that H3G would have less incentives
to compete aggressively than the Parties would in the absence of the merger.
That the resulting "stabilisation" of the market may be reflected in less choice
or higher prices is explicitly set out in a number of internal documents
212
of
both Parties and likely was taken into account by the Parties when assessing
the impact of the merger.
213
6.7. Absence of countervailing factors
(285) The Horizontal Guidelines set forth that unilateral effects may be reduced or
entirely eliminated if certain countervailing factors apply, namely the likeli-
hood that buyer power would act as a countervailing force, that entry would
maintain effective competition, that the merger would bring about efficien-
cies to the benefit of consumers,
214
and that the "failing firm" defence might
apply.
(286) Although the Notifying Party has raised the argument that Orange was ex-
periencing financial difficulties, it has not formally raised a failing firm de-
fence. There is therefore no need to discuss whether the criteria of the Hori-
zontal Guidelines are fulfilled or not.
215
6.7.1. Barriers to entry and likelihood of new entry
(287) The Austrian market for mobile telecommunications services to end custom-
ers is characterised by substantial barriers to entry.
6.7.1.1. Prerequisites for market entry
(288) The following steps would be required in order to enter the market as an
MNO (including building an own network):
216
– obtaining the right type of spectrum in order to establish a national mo-
bile network on a commercially viable basis;
– complying with all regulatory requirements for setting up a mobile
network;
– building an initial greenfield network with national or near-to national
coverage; national (or near-to national) coverage is essential for viabil-
212
See for example H3G Response to RFI of 15 June 2012 (questions 1 and 2a-e) – 11-07-11
Chairman Presentation final: […]*, slide 68, Doc ID 2571; "M6497 - H3G Orange Austria -
Response to SO - Annex 05 - The Apple Model.xlsx", Doc ID 6207.
213
See Recitals (254) and following.
214
For a discussion of efficiencies see Section 7.
215
See Horizontal Guidelines paragraphs 89 and following.
216
See Form CO, paragraph 617.
70
ity as customers will not subscribe to a network which cannot reach
substantially all other mobile subscribers in Austria;
– a greenfield network can be achieved through an own build or in
combination with network sharing or national roaming;
– the network also requires a backbone, a core network and an IT
environment;
– marketing, sales, customer service and support structures and the in-
vestment to acquire customers;
– negotiating and entering into national interconnection agreements with
all Austrian operators, national SMS and MMS interworking agree-
ments, agreements with at least one IP (Internet Protocol) upstream
provider, GRX (GPRS (General packet radio service) Roaming Ex-
change) provider and voice provider for calls to foreign destinations;
– implementing interfaces for mobile number portability, legal intercep-
tion, data retention and information services; and
– entering into international roaming agreements, international SMS in-
terworking agreements and international MMS interworking agree-
ments in order to be able to provide international services.
6.7.1.2. Non-availability of spectrum
(289) As set out above,
217
a potential entrant would first of all need access to spec-
trum. Of the spectrum set to be auctioned in 2012, however, only the 800
MHz band is available immediately, with the rest only coming on line in a
few years' time. That band, by itself, offers good propagation characteristics
which makes it suitable for nationwide rollout, but is limited in quantity to
2x30 MHz and expected to be subject to high demand in the upcoming auc-
tion also from the existing operators. It is also hard to obtain planning per-
mission for 800MHz masts in urban areas and it offers insufficient bandwidth
to efficiently cover such areas. The lack of availability of sufficient spectrum
by itself excludes new entry within a timescale sufficient to affect the com-
petitive environment as it would result from the Proposed Transaction.
6.7.1.3. Return on investment
(290) Given the already high penetration rate, a new market entrant would have to
grow a sufficiently large subscriber base almost exclusively based on cus-
tomer churn from existing operators. This means that although it would need
to incur significant upfront investment costs to build a new network, it could
recuperate those investments only more slowly.
(291) The costs of MNO market entry are significant in the light of the prerequi-
sites set out in recital 287. An MNO would need to build an entirely new na-
tional network, including a backbone, a core network and the IT environ-
ment. In addition, it would need to establish from scratch the necessary mar-
217
See Section 6.3.4.
71
keting, sales, customer service and support structures, and invest heavily in
customer acquisition. By way of example, the total peak funding cost of
H3G's market entry was approximately EUR 2 billion.
218, 219
This included
the cost of its 3G spectrum licence, the capital expenditure in building its
network, as well as all operating losses until the business became self-
funding in 2010. Following its launch in 2003
220
(292) H3G estimates
221
that the timeframe for a new MNO to build an initial green-
field network would be at least 2 to 4 years. H3G also estimates that it could
take a new MNO approximately 10 years to build a customer base with suffi-
cient scale in order to pay for its running costs and to obtain a reasonable re-
turn on its investment.
6.7.1.4. Results of market investigation
(293) The overwhelming majority of respondents to the market investigation have
indicated that it is extremely unlikely that a new player will enter the market
as an MNO. A very large majority of responding business customers and
consumer associations do not expect new entry in the future, given, among
other things, the high investment costs for MNOs and the generally low price
level. The Parties also argued in the Form CO that such entry is "unlikely, al-
beit not entirely excluded"
222
and have taken a similar position in remedy
discussions.
(294) MNOs established in other Member States which might be viewed as poten-
tial candidates for entry have ruled out the possibility of a full MNO entry
because of, amongst other things, the high costs involved in acquiring spec-
trum and building up new sites as well as the low retail price level in the
Austrian market. The Commission considers that, in the absence of appropri-
ate remedies, this would not change post-merger and therefore, the likelihood
of MNO entry post-merger would remain very low.
6.7.1.5. Lack of MVNOs
(295) It is possible that entry as an MVNO might contribute, to some extent, to
disciplining prices at the retail level, provided that MVNOs are able to gain
access on sufficiently attractive terms to be able to offer a full range of ser-
vices, including in the post-paid and data segments. However, as already not-
ed
223
there are very few real MVNOs active on the Austrian market.
(296) Some potential MVNOs have indicated that there are artificially high barriers
to entry as a virtual operator in Austria because the incumbent MNOs are
218
Figure confidential to H3G, see Form CO, paragraph 619.
219
Peak funding refers to the amount of cash to be invested in a project (i.e. to cover capex, opex
and working capital) before the project generates a positive cash flow. This measure is fre-
quently applied in respect of projects with significant capital investment costs; see Form CO,
paragraph 619.
220
Information confidential to H3G, see Form CO, paragraph 619.
221
See Form CO, paragraph 620.
222
Form CO, paragraphs 616–621.
223
See Section 6.3.1.2.
72
protecting their retail business through high wholesale access fees. The con-
ditions currently offered by MNOs do not allow for sustainable full-service
MVNO competition to emerge. A number of respondents consider that there
is no reason why MVNOs cannot play a full role in the market and exert con-
siderable retail competitive pressure. This, however, requires appropriate
terms to be available on the wholesale market, which is a non-regulated mar-
ket in Austria as in most other Member States.
(297) Liberty Global remarked that the current wholesale situation in Austria is
"suggestive of market failure. One might conclude that the MNOs are happy
with the status quo".
224
Lycatel pointed out that "[g]enerally, this occurs
where the MNOs simply are not prepared to enter into negotiations for
MVNO access".
(298) The Commission notes that Tele2 failed to set up a sustainable MVNO busi-
ness and sold all its customers to TA in 2008. Other MVNOs have been try-
ing to enter the Austrian market for a few years but argue that the wholesale
arrangements offered simply prohibit the conclusion of MVNO wholesale
agreements in Austria. The market investigation has revealed some com-
plaints about the access rates and the unrealistically high volume commit-
ments. According to a potential entrant MVNO, "MNOs always offered
wholesale rates that, if they themselves applied these rates to their own offer,
would not allow them to make any business at all".
225
In the market investi-
gation, the MNOs' behaviour was described as a "margin squeeze".
226
It has
been argued that MNOs impose such high rates in order to shelter their "no
frills" brands (such as Bob and Yesss!) from competition. The barriers to en-
try could increase post-merger, as the potential MVNOs would have one less
MNO to negotiate with for access.
(299) In addition, an MVNO entrant would require access to the portability data-
base in order to launch its services in Austria (and elsewhere). MVNOs can
create their own portability database, although this would require substantial
investment and some delay, or they can negotiate with an MNO. One re-
spondent to the market investigation stated that Orange was the only operator
willing to offer this service.
6.7.1.6. Conclusion
(300) It is therefore unlikely (albeit not entirely excluded) that MNO or MVNO
market entry would occur in Austria today.
227
Even if an MNO were to enter,
moreover, it would need to await suitable spectrum allocation, build a radio
network and then roll out its services to customers, all of which would take a
224
See non-confidential reply of LGI to Q4 -III– Questionnaire to MVNOs regarding wholesale
access, question 14, Doc ID 4686.
225
Minutes of telephone conference with potential entrant MVNO on 23 May 2012, Doc ID 5909
(non-confidential).
226
Minutes of telephone conference call with potential entrant MVNO on 4 June 2012, Doc ID
2297 (non-confidential).
227
See Form CO, paragraph 621.
73
considerable time. It is therefore not possible that, in the absence of appro-
priate remedies, any market entry would be sufficiently timely to exercise a
disciplining effect on the price levels resulting from the merger.
228
6.7.2. Countervailing buyer power
(301) On the market for mobile telecommunications services to end customers
there is no appreciable countervailing buyer power to exercise competitive
pressure on the MNOs to off-set the expected adverse effects of the merger.
(302) Competitive pressure exercised by customers is what is qualified in the Hori-
zontal Guidelines as countervailing buyer power.
229
According to the Hori-
zontal Guidelines, even an important player on the market may not be in the
position to significantly impede effective competition if it cannot act to an
appreciable extent independently of its customers. This countervailing buyer
power is to be understood as the bargaining strength of the buyer vis-à-vis its
supplier relative to its size, its commercial significance to the seller and its
ability to switch to alternative suppliers.
(303) Individual customers, including business customers, do not have a sufficient
size and commercial significance to bargain prices. Even if some business
customers may negotiate their contractual clauses and prices,
230
this frag-
mented group of individuals and businesses has no means to coordinate their
behaviour in order to exercise noteworthy competitive pressure on their re-
spective suppliers. Thus the conditions and the level of prices cannot be af-
fected from the buyers' side. Those few customers who might be large
enough to resist price increases to some degree would not shelter the remain-
der of the market from the exercise of market power.
(304) Finally resellers and distributors would also not resist price increases by the
MNOs. Even if retailers had a certain purchasing power a price increase
would, as such, not affect the retailers' economic interests. They can pass on
price increases to end consumers and their contractual relationship with the
MNO is usually based on commissions without an obligation to market de-
fined quantities.
231
6.8. Anticipated effect of the proposed transaction on prices in the post-paid
phone segment (voice and data)
(305) The Proposed Transaction would result in a reduction of the number of
MNOs in Austria from four to three in a market with significant barriers to
entry. Furthermore, there is negligible presence of MVNOs in Austria. It is
therefore necessary for the Commission to assess whether or not the Pro-
posed Transaction would lead to a significant impediment to effective com-
228
See Form CO, paragraph 621.
229
Horizontal Guidelines paragraphs 64 and following.
230
According to the Notifying Party's estimates Austria's overall business segment amounts to
roughly 20% of the revenues generated by the MNO on the market for mobile telecommunica-
tions services to end customers in 2011, Annex 6.(3) to the Form CO.
231
Responses to RFI of 11 July 2012 to resellers and distributors.
74
petition as a result of further concentration in what is already an oligopolistic
market.
232
(306) The Commission notes that the Proposed Transaction would combine the two
smallest players on the market, based on overall existing market shares, re-
sulting in a new player which would still be only the third largest MNO.
However, the transaction would also transform H3G's position in the market,
more than doubling its customer base from 0-2 million to 2-4 million sub-
scribers, making it much more comparable in size to the two other remaining
providers.
(307) This fundamental change is even more relevant since, prior to the Proposed
Transaction H3G has substantially increased its market share through organic
growth. A reduced need for such growth will tend to lead to less aggressive
competitive behaviour by H3G. A higher subscriber base relative to the mar-
ket size typically reduces the incentives to attract further customers, for ex-
ample, by offering attractive retail terms. This is because an MNO with a rel-
atively large customer base that offers attractive prices in order to attract fur-
ther customers risks losing profits on its existing customers. Although many
existing customers may not immediately be able to profit from the new rates
due to contract lock-in, over time this risk of cannibalisation would be sub-
stantial.
(308) As shown in the following analysis (see Section 6.8.1), the Commission
takes the view that the Proposed Transaction would result in a significant
upward pricing pressure ("UPP") to the detriment of consumers, in particular
in the post-paid private voice and data as well as the data-only segments of
the market. The significance of the values deriving from the UPP analysis is
convergent with the analysis of market shares based on customer acquisition
rates discussed above.
233
(309) The fact that the Parties represent the first and second choice of a significant
group of customers as shown in Section 6.5 and that they can internalise the
constraint they currently impose on each other by the threat of switching
post-merger, and the absence of countervailing factors, means that a signifi-
cant number of customers would face an increase in the quality-adjusted
price. This would not only affect subscribers of the Parties, but also custom-
ers who prefer other brands that would be negatively affected by the knock-
on incentive of competitors also to raise prices.
6.8.1. Post-paid private segment (voice and data)
6.8.1.1. UPP analysis
(310) UPP makes it possible to estimate to what extent the merged firm would have
the incentive to raise prices post-merger given in particular prices, margins
and diversion ratios observed in the market. This section analyses what it
would be profitable for the merged entity to do. Its ability to act on those in-
232
Recital 25 of the Merger Regulation.
233
See paragraph (171).
75
centives depends on the existence or otherwise of countervailing factors
which could frustrate a price increase and is analysed elsewhere in this Deci-
sion (Section 6.7 for barriers to entry and countervailing buyer power, and
Section 6.9 for the reaction of competitors). In the absence of such counter-
vailing factors, the Parties may be considered to have the ability to act in
keeping with the economic incentives which they face.
(311) It is possible to compute the likely price increases which the Proposed Trans-
action would create the incentive to bring about based on the UPP together
with an assumption on the cost pass-through rate (namely that resulting from
linear demand).
234,235
The predicted price increase is likely to be less precise
than a full merger simulation since it ignores the feedback effects between
the two products and between the other rivals (these factors typically increase
the magnitude of the predicted price increases further) and does not take any
merger-specific efficiencies into account. However, these assumptions make
it possible to go beyond the general UPP result directionality and to quantify
the unilateral incentive for the merged entity to increase prices as a result of
the merger.
(312) Key inputs to the UPP analysis are the diversion ratios between the Parties.
For the post-paid segment, these ratios are estimated on the basis of the data
available in the national MNP data.
236
(313) Competition takes place for "contestable" users. As unit prices decrease in
the industry and the functionality of handsets increases, the value of existing
tariff plans and of the investment in a handset decreases over time, meaning
that at some point there is always an incentive to switch. Therefore having
the option to remain on an existing contract is not an effective constraint on
current pricing behaviour.
(314) In Table 12, the estimated gross upward pricing pressure index ("GUPPI") is
computed on a per-user basis using the Parties' figures for the average reve-
nue per user (ARPU) and the diversion ratios implied by the MNP for the
most recent twelve month period, that is to say, the last three quarters of
234
Farrell, J. and C. Shapiro, (2010) "Antitrust Evaluation of Horizontal Mergers: An Economic
Alternative to Market Definition", The B.E. Journal of Theoretical Economics, Volume 10, Is-
sue 1, observes that holding rivals' prices fixed, the single-firm pass-through rate is one-half
with linear demand and higher with convex demand (for example with the one employed by
the Notifying Party). Higher pass-through results in higher predicted price increases. Accom-
modating pricing responses by rivals can also raise the equilibrium pass-through rate.
235
See Hausman, J., S. Moresi, and M. Rainey (2010), "Unilateral Effects of Mergers with Gen-
eral Linear Demand", Economics Letters.
236
Technically, what is required are the diversion ratios in response to a price increase. Although
observed switching may to some extent be driven by factors other than price, it nonetheless
constitutes a reasonable estimate of the expected pattern of price-induced switching. This ap-
proach has also been used in previous decisions by the Commission. See for Case No
COMP/M.5650 – T-Mobile/Orange; Case No COMP/M.4748 – T-Mobile/Orange Nether-
lands; Case No COMP/ M.3916 – T-Mobile Austria/Tele.ring.
76
2011 and the first quarter of 2012.
237
Using the contribution margin and tak-
ing the more recent figures for 2012, it shows a predicted price increase of
[10-20]*% for a H3G customer and [10-20]*% for an Orange customer, both
of which can be considered highly significant.
238
Table 12: GUPPI Analysis
H3G Or-
ange
ARPU […]* […]*
Post-paid Direct Margin […]* […]*
Post-paid Cont. Margin […]* […]*
MNP Diversion ratio […]* […]*
Predicted price increase using
direct margins
GUPPI […]* […]*
Predicted price increase [10-
20]*%
[10-
20]*%
Predicted price increase using
contribution margins
GUPPI […]* […]*
Predicted price increase [10-
20]*%
[10-
20]*%
237
Marginal cost may change post-merger if efficiencies were to lead to a lower marginal cost.
On the issue of possible efficiencies from the proposed transaction see Section 7 below.
238
Both margins are computed by the Parties for their own commercial use in tempore non sus-
pecto (see footnote 153). The contribution margin includes customer acquisition and retention
costs and appears to be the more suitable measure given that competition takes place for new
customers. Predicted price increases are computed based on equation 2 of the paper by Haus-
man, Moresi and Rainey cited in footnote 235, using gross adds as a proxy for quantities. The
equation can be described as follows: Where p1 is the pre-merger price of firm 1, D12 the di-
version ratio from firm 1 to firm 2, c1 the marginal cost of firm 1 and Q1 the sales of firm 1,
and similarly for the variables relating to firm 2, all evaluated at the pre-merger equilibrium.
The derivation of the formula is given in the paper cited. The calculation using equation 11,
which requires the additional assumption of the cross-price derivatives of the demand func-
tions being approximately equal but does not require quantities as an input to the calculation,
gives an identical result for H3G and a figure of 7.33% for Orange.
77
Source: Commission's own calculations based on H3G reply to RFI of 8 May 2012, Annex
5.1; Orange reply to RFI of 8 May 2012, Annex 5a; Annex 6.8 to the Form CO
(315) In the Commission's view, the use of ARPU is justified as a single measure
of price in order to estimate the predicted price increase, in particular given
limitations in the available data and the intractability of more complex mod-
els, by the following considerations. ARPU allows the use of a single value
to conceptually represent the price of the "typical" phone bundle offered by
each firm, which is demanded in unit quantities. Evidence provided by the
Parties shows that only 10-15% of revenues from phone users are out-of-
bundle and that this figure continues to decline.
239
It is also appropriate to
work with the simplifying assumption that usage needs are exogenous and
that customers choose between brands, that is to say, they choose the pro-
vider with the most interesting offer given these exogenous needs.
(316) Upward pricing pressure arises because, post-merger, the new entity would
not lose all switchers after a unilateral price increase of one of its brands, but
rather would retain a significant number and therefore internalise part of the
losses which a price increase would otherwise bring about. For instance, if
the merged entity were to increase the prices for Orange services relative to
what Orange would have done in the absence of the merger, it would inter-
nalise the effect that some customers would switch to H3G's own brand. This
would make a price increase of Orange tariffs profitable for the merged en-
tity where it would not have been for Orange in the standalone scenario. A
similar reasoning would apply to an even greater extent to H3G plans. Up-
ward pricing pressure is to be understood relative to the direction which pric-
es would have taken in the absence of the merger. To the extent that decreas-
ing prices would be expected in the absence of the merger, upward pricing
pressure does not necessarily mean that prices would increase as a result of
the merger in absolute terms. The possibility to increase prices may also im-
ply pursuit by the merged entity of fewer improvements in functionality of
the services available than would have applied in the absence of the merger,
resulting in consumer welfare losses by mechanisms other than price. Reduc-
tion of handset subsidies may also be a way to realise a price increase. In the
Commission's analysis, upward pricing pressure is taken to encompass all
mechanisms by which the merged entity could increase its margins relative to
the pre-merger situation.
(317) It is important also to stress that the UPP methodology does not take into
consideration the feedback effects of unilateral price increases by the merged
entity on the two remaining rivals. Since an increase in prices by the merged
entity would provide an incentive to TA and T-Mobile to follow suit, the ex-
pected consequence of the UPP on the Parties as a result of the merger is
likely to be an overall increase in prices relative to the situation in the ab-
sence the merger. The UPP therefore underestimates the effect of the merger
on the prices which the merged entity would adopt, and also does not quan-
tify the extent to which the prices of competitors would be expected to rise in
239
Replies to the RFI of 8 May 2012, annex 5.1, Doc ID 1451.
78
response. The UPP predicted for the Parties, in the short run, applies to new
business and therefore on its own to about 40-45% of the contestable market.
6.8.1.2. Arguments put forward by the Notifying Party
(318) In response to the SO, H3G has argued that the Commission's contention that
the Proposed Transaction will result in upward pricing pressure is "entirely
flawed". Five broad arguments are made, namely:
(1) "The Commission has limited its assessment to two segments (rather
than the relevant market)"
(2) "The UPP framework relied on is overly simplistic and disregards im-
portant features of the Austrian mobile telecommunications industry"
(3) "As a consequence of these [alleged] deficiencies, the results obtained
from the UPP analysis are implausible."
(4) "The UPP framework is, in any event, an inadequate tool to predict
pricing outcomes in a Phase II merger investigation."
(5) "The UPP analysis conducted omits a consideration of merger efficien-
cies, which is a fundamental element of the UPP framework."
240
6.8.1.2.1. The UPP analysis on the post-paid segment
(319) As regards the first objection, the Commission has already set out the reason-
ing behind its analysis of the post-paid segment, which is a distinct segment
of demand and by far the most important segment by revenue in the overall
market. The Commission has carried out the UPP analysis
241
on the private
post-paid segment only. The reasons why the remaining competitors would
not discipline a price rise are set out in Section 6.9.
242
6.8.1.2.2. Appropriateness of the UPP framework
(320) As regards the second objection, the Parties break it down into five sub-
claims, as follows.
(321) Firstly, they claim that "pricing incentives in the mobile industry are funda-
mentally driven by the very large investments required to roll out and main-
tain a network. MNOs thus have an incentive to fully exploit their capacities
by having a customer base as large as possible. This is reflected by the fact
that they engage in price discrimination by offering a wide range of tariffs to
appeal to different customer segments and to increase their customer base.
These incentives are ignored by the UPP framework used in this case."
243
(322) In this regard, the Commission has discussed in Section 6.6.2 the incentives
faced by the MNOs. The Commission does not dispute that MNOs try to en-
240
H3G Response to the SO, paragraph 230.
241
The UPP framework was also used in the American AT&T/T-Mobile case; see paragraph
(324).
242
That section also rebuts what is said at paragraph 251 of the response to the SO in relation to
the third objection.
243
H3G Response to the SO, paragraph 234
79
gage in price discrimination in order to make better use of their network. At
the same time, none of the MNOs fully exploits its network. An incentive to
do so exists only insofar as this would not cannibalise infra-marginal cus-
tomers (reducing profits on those customers which would anyway have cho-
sen the MNO in question at the existing price level, but who, as a result of
the promotion, can now benefit from a lower price than they would have
been willing to pay). The argument of the Parties seems to be precisely the
opposite of standard economic theory: pricing incentives are not driven by
investments, but rather investments are driven by the profits which can be
expected to be achieved. Once investments are sunk, they do not affect pric-
ing incentives. The Parties fail to explain how any incentives not taken into
account in the analysis would be expected to materially alter the results.
(323) Secondly, the Parties state that "price is not the only parameter of competi-
tion. Instead, investments in network quality are also an important dimension
of competition, as operators constantly need to invest in their networks to
remain competitive. By contrast, the UPP framework is one-dimensional: it
assumes that price is the only strategic variable considered by MNOs."
244
(324) This claim by the Parties is similarly incorrect. The SO already made clear
that the anticipated effect on price was to be understood in a quality-adjusted
sense. This is equivalent to what was done in the AT&T/T-Mobile case in the
US,
245
where a dollar equivalent value was computed for various properties
of the service offered. The UPP framework is entirely open to an interpreta-
tion in terms of quality-adjusted prices.
(325) Thirdly, the Parties object that "the SO's … [assumption] that it is appropri-
ate to model the market as one where each MNO offers a single product
where the price charged is the ARPU… does not match with reality."
246
(326) The Commission is aware that the UPP analysis incorporates certain assump-
tions. This, however, is in the nature of all economic analysis. The justifica-
tions for those assumptions were stated in the SO.
247
The Parties did not
show that there are relevant features of the market which make those as-
sumptions not merely a simplification, but misleading in terms of results.
(327) In assuming a single product firm and using ARPU for revenue, the Commis-
sion's GUPPI analysis made similar assumptions to those contained in the
model employed by the Parties' own economic advisors in AT&T/T-Mobile
which are now criticised.
(328) The Parties argue (incidentally thereby giving support to the Commission's
analysis based on segments) that "(i) the pricing incentives provided by the
Proposed Transaction may be quite different for each tariff and customer
244
H3G Response to the SO, paragraph 235.
245
See http://apps.fcc.gov/ecfs/document/view?id=7021717659 (retrieved 29 November 2012).
246
H3G Response to the SO, paragraphs 236–7.
247
See paragraph 202 of the SO.
80
segment, and (ii) the dynamics between the various tariffs offered by the
same MNO must also be considered."
248
(329) The Parties have not attempted to provide any indication of what the effect of
adopting a more complex model would be, nor even any rationale as to why
this would have an appreciable effect on the predicted price increases.
(330) The Commission also notes that tariff design is endogenous. New tariffs can
be launched by operators immediately. It thus would make no sense to at-
tempt an analysis of the effect of the merger on the pricing at the level of ex-
isting tariffs, since the merged entity would be at liberty to redesign all of its
existing tariffs following the merger in order to optimise its portfolio of of-
ferings.
(331) These objections by the Parties are therefore unfounded.
(332) H3G goes on to state that "these assumptions are also inconsistent with the
Commission's theory that H3G's incentives will dramatically change post-
merger because of the increase in its customer base. That theory relies on an
assumption that, if H3G offers more aggressive tariffs to new customers, ex-
isting customers on more expensive tariffs will also switch to the cheaper
new tariffs, such that the margins earned on the old customers are cannibal-
ised. That view is contradicted by the assumption, which is convenient in the
UPP analysis used in this case, that there is no diversion between the tariffs
of the same MNO."
249
(333) However, the Commission's arguments regarding H3G's post-merger incen-
tives captured by the UPP analysis do not rely on a desire to avoid cannibali-
sation of existing customers on "old" tariffs. It is likely, given the general
downward trend of prices in the sector and upward trend of functionality, that
most or all users who are out of contract would already have an incentive
pre-merger to switch to a new tariff if they were aware of its existence. The
UPP analysis implicitly takes that number of contestable customers as given
and focuses on the cannibalization which would take place amongst custom-
ers already looking to switch.
(334) The dynamics of switching between old tariffs (those which a user signed up
to at least two years previously) and new tariffs (those available to that same
user today) at the same firm may lead to additional effects as set out in Sec-
tion 6.6.2 that are not captured in the UPP analysis. If the customer base in-
creases through the merger, the merged entity may have an additional incen-
tive not to reduce prices in order to avoid incentivising its own customers not
to switch to new tariffs.
(335) H3G argues that "Orange's 2011 ARPU appears almost 30% higher than
H3G's, and its contribution margin appears between two and three times as
248
H3G Response to the SO, paragraph 237.
249
H3G Response to the SO, paragraph 240.
81
large. It is quite implausible that these hugely differing average prices and
costs should represent the 'typical phone bundles' of each firm."
250
(336) The Commission is confident that H3G has carried out the necessary due
diligence on its intended acquisition target and is therefore fully aware of
both its average revenues per user and its contribution margins. The figures
cited are a simple calculation from data provided by the Parties. The Parties
do not substantiate why these figures are "quite implausible". To the Com-
mission's knowledge, the figures correctly reflect the market situation.
(337) The fourth objection made by the Parties relates to the margins used in the
calculations.
251
The Commission (unlike the Parties themselves) has carried
out a series of robustness calculations on the UPP calculations, which are re-
ported in Annex II. Those calculations show that, even if the Parties' argu-
ments as to the appropriate margins to use were followed in their entirety,
any reasonable computation based on the approach suggested by the Parties
continues to show significant price effects.
(338) The fifth and final objection under this heading concerns the assumption on
the pass-through rate, which according to the Parties has "no empirical sup-
port".
(339) The Parties provide no estimate of the pass-through rates applicable in their
own industry, but merely refer to a couple of general multi-industry empiri-
cal studies, without reference to the industry structure. This cannot be taken
into account as a basis for the Commission's assessment.
(340) In any case, if the implication is that firm-optimal pass-through is con-
strained by behavioural factors, this seems unlikely in the general context of
declining quality-adjusted prices which characterizes the mobile telecommu-
nications industry, since the increment over the hedonic price
252
in the ab-
sence of the merger is not observed by consumers.
6.8.1.2.3. SSNIP test objections
(341) In relation to the third objection, the Parties also state that "In fact, if these
results were correct, they would imply that H3G and Orange form a relevant
antitrust market. This follows from the logic of the SSNIP test: the Commis-
sion's predicted price increases would mean that a hypothetical monopolist
over the supplies of both H3G and Orange would find it profitable to in-
crease prices by more than 5–10%. This is obviously implausible and incon-
sistent with the Commission's own relevant market definition in this case.
Therefore, the results of this analysis should be disregarded."
253
(342) The Parties attempt to argue here on the basis of a purely formal inconsis-
tency in the approach to market definition based on the SSNIP test which, if
followed, would lead to the conclusion that any merger which raises con-
250
H3G Response to the SO, paragraph 241.
251
H3G Response to the SO, paragraphs 242–246.
252
See also Recital (350).
253
H3G Response to the SO, paragraph 252.
82
cerns on the basis of non-coordinated price increases could be qualified as a
merger to monopoly in terms of the SSNIP test or conversely that no con-
cerns could ever be raised over an oligopolistic merger short of monopoly.
(343) Such a conclusion would have no operational value or sense and is not what
the Notice on the definition of the relevant market requires. That Notice
states, at paragraph 16, that "conceptually, this approach means that, starting
from the type of products that the undertakings involved sell and the area
in which they sell them, additional products and areas will be included in,
or excluded from, the market definition depending on whether competition
from these other products and areas affect or restrain sufficiently the pricing
of the parties' products in the short term" (emphasis added). In other words,
the smallest set of products considered to form part of the relevant market
may be determined on the basis of a qualitative determination of the "type of
products" concerned. It is not contested in this case that TMA and TA offer
products of the same type as the Parties.
6.8.1.2.4. Correct UPP analysis application
(344) In relation to the fourth objection, the Parties state that "the UPP framework
was devised as a merger screen suitable to identify potentially problematic
mergers and hence is useful as a phase 1 screen. The US competition agen-
cies, which pioneered the application of the UPP framework in their investi-
gations, also acknowledge that it is not a complete analysis of all the rele-
vant factors." They go on to quote Carl Shapiro, former Deputy Assistant At-
torney General for Economics of the Antitrust Division of the US Depart-
ment of Justice, as having said that "while this analysis can be highly infor-
mative, the Agencies understand full well that measuring upward pricing
pressure, or even performing a full merger simulation, typically is not the
end of the story, especially in rapidly changing industries. Repositioning, en-
try, innovation, and efficiencies must also be considered."
254
(345) As stated in the introduction to this section at recital (310), the Commission
fully agrees that it is necessary to look into all aspects of competition in the
relevant market in order to draw definitive conclusions, and this is what it
has done in this Decision.
(346) The UPP approach has been widely used, including in the mobile telecom-
munications industry in the recent AT&T/T-Mobile case in the USA. The Par-
ties have no suggestion as to an alternative, better methodology which would
have been available to the Commission in the context of this case.
(347) It is therefore clear that there exists no generally agreed and tested, robust
alternative approach which could have been used to underpin the Commis-
sion's findings. The Commission has therefore done what was feasible given
the available data. GUPPI is a generally accepted component of a merger
analysis.
254
H3G Response to the SO, paragraph 253.
83
(348) The Parties do not show that there are specific characteristics of the sector in
question which would render another approach more appropriate or results in
a significant upward bias in the Commission's estimates. In the absence of an
alternative quantification by the Parties and/or a compelling explanation of
the rationale behind any claim that prices would not increase (or would do so
only marginally), the Commission is of the view that its analysis has not been
invalidated or even relevantly criticised by the Parties.
(349) If the assumption in the UPP calculation of constant marginal costs were
incorrect because marginal costs actually decrease, this would mean higher
marginal margins and so a greater incentive to raise prices.
(350) The UPP analysis does not say anything about what would happen to invest-
ment as a result of the merger. However, this does not mean that it presup-
poses price to be the "main competitive parameter". Firms make investments
in order to achieve returns through the prices they are able to charge for the
services those investments make possible. If the merger were to lead to lesser
investment and therefore a lower level of services available at the same price,
this would benefit the firm in the same way as raising the price and possibly
be easier to implement. Therefore the UPP analysis correctly captures the
relevant incentives relative to the situation in the absence of the merger, and
uses prices as shorthand for quality-adjusted prices (sometimes called "he-
donic prices") in a way which is perfectly familiar in economic analysis. This
was explained in the SO
255
and is restated in recital (316).
(351) Indeed, the paper by Willig,
256
cited by the Parties apparently in defence in
the response to the Article 6(1)(c) decision,
257
itself states that "the same
[UPP] methodology can be applied to a wide variety of settings with differ-
ent characteristics and features in ways that yield related tools that only in-
crease the possible analytic power and applicability of the entire approach."
In relation to the use of quality-adjusted prices, it is even clearer that "these
are the correct measures of the impacts on consumers of possible combina-
tions of concomitant changes in the nominal prices and in product character-
istics". Indeed, the only difference in the formula derived by Willig other
than replacing natural by hedonic prices consists in efficiency terms, which
the Parties in this case have failed to demonstrate.
6.8.1.2.5. Efficiencies and UPP analysis
(352) Regarding the fifth and final objection, the Commission agrees that it would
be appropriate to include in the UPP analysis the effect of any efficiencies
whose existence and merger-specificity had been demonstrated to the Com-
mission by the parties to a Proposed Transaction. However, as further dis-
cussed in Section 7, the Parties have not provided sufficient evidence to rec-
ognize efficiencies in this case. Therefore there is no need to include effi-
255
See paragraph 203 of the SO.
256
Robert Willig, 2011. "Unilateral Competitive Effects of Mergers: Upward Pricing Pressure,
Product Quality, and Other Extensions," Review of Industrial Organization, 39, pp. 19–38.
257
See H3G Response to the Article 6(1)(c) decision, Annex 1, paragraph 4.16.
84
ciencies in the UPP analysis, since the existence and relevance of such effi-
ciencies has not been established.
6.8.1.2.6. Predicted price increases
(353) Finally the Parties dispute the materiality of the price increases predicted by
the Commission, stating that "in particular, the SO states that the [predicted
price increases] apply in the short run to new business and therefore to 40-
45% of the contestable market. According to the SO, [10-20]*% of all exist-
ing post-paid customers switch to a new operator in a year. This means that,
in the worst case scenario, the Commission's analysis predicts a non-
material short term increase in the prices of post-paid private mobile ser-
vices (only 1.1%, or 23% x 11% x 45%)".
258
(354) The Parties' reasoning is flawed. The number of customers who switch to a
new operator is obviously less, and likely to be much less, than the number
who switch (or at any given moment are considering switching) to a new
plan at their existing operator.
259
Indeed, H3G has stated that the average
customer remains on a given tariff for only [30-40]* months,
260
implying that
infra-firm switching is at least twice as frequent as between-firm switching.
The figure of [10-20]*% (see recital (168)) is therefore not an estimate of the
size of the contestable market.
(355) More importantly, while in the first year only the potential switchers of that
year would be affected by the price increase, gradually all customers would
be free to switch and would therefore be affected by the expected price in-
crease. In particular, customers who decided not to switch to a new tariff be-
cause new tariffs became less attractive would be worse off than they would
have been in the absence of the merger where they would switch to cheaper
new tariffs. Therefore, multiplying by the number of annual switchers is in-
appropriate.
(356) The Commission has also explained that the other operators would be ex-
pected to follow suit with price increases of their own and that the anticipated
price increase is not a general equilibrium concept. Therefore total price in-
creases in the market would be more significant than set out here.
6.8.1.3. Conclusion
(357) It follows from the above, together with the additional analysis of market
structure and incentives,
261
that the Commission's analysis of upward pricing
pressure in the post-paid segment contained in the SO
262
has not been rebut-
ted by the Parties and can be relied upon for the conclusions drawn from it in
this Decision.
258
H3G Response to the SO, paragraph 257.
259
For H3G, this is shown by the graph included at paragraph 239 of its response to the SO.
260
Compass Lexecon submission of 10 September 2012 on unilateral effects, paragraph 4.30.
261
See Sections 6.4 and 6.6.2.2.
262
SO, section 6.3.1.2.
85
6.8.2. Segment of data-only devices
(358) It is considerably more difficult to carry out a reliable estimation of the price
increases which the merger could lead to in the dongle segment owing to the
lack of data on costs and switching. For this reason, only qualitative conclu-
sions can be drawn.
(359) In respect of diversion ratios, Orange's existing market share by number of
subscribers is low, at [5-10]*% in 2011. However, there are indications that
the Parties may be closer substitutes than their respective market shares sug-
gest. Moreover, the recent figures on gross adds in the data-only segment
(see recital (174)) would imply much higher diversion ratios between the
Parties even if all players in the market were in the aggregate similarly attrac-
tive. The implied diversion ratio from Orange to H3G would be [30-40]*%
whilst that from H3G to Orange would be [20-30]*%.
263
(360) Margins in this segment may also be quite high. There appear to be few or no
direct costs as there is no interconnection fee, subsidies are much more lim-
ited and marketing expenses may also be lower as the dongle segment is rela-
tively mature in terms of number of subscribers. On the other hand, a greater
proportion of network costs should be attributed to the data-only segment so
that, if it were deemed appropriate to consider a part of these as variable,
margins would be lower. The Parties have not provided fully-costed margins
on data-only products.
(361) As a result of this, the Commission considers that there is likely to be at least
a degree of upward pricing pressure also in relation to the data-only segment.
In any case, it is unnecessary to demonstrate or quantify this effect for the
purposes of this Decision, since the Proposed Transaction leads to concerns
on the (currently much more important in terms of revenue) post-paid voice
and data segment which are sufficient to establish a significant impediment
to effective competition on the relevant market.
6.8.3. Conclusions
(362) The Commission's analysis using the GUPPI approach predicts increases in
quality-adjusted prices as a result of the Proposed Transaction of the order of
10–20% in the post-paid private segment. In the data segment, a robust pre-
diction could not be obtained.
(363) The GUPPI approach looks only at the incentives faced by the Parties. As
argued in Section 6.9, competitors would be expected to respond to price in-
creases by the merged entity with price increases of their own. This would
further relax pricing constraints on the merged entity, resulting in feedback
effects which would be expected to further inflate the price increases pre-
dicted.
(364) The Commission has also argued in Section 6.6 that H3G is currently a par-
ticularly important competitor in the Austrian market, as a result of which
prices in that market are very low compared to other Member States. As a re-
263
[…]*
86
sult of the Proposed Transaction, H3G's incentives will change. This change
in incentives is only partially reflected in the UPP calculations and is an addi-
tional reason to expect quality-adjusted prices to rise compared to what
would have happened in the absence of the merger.
(365) It follows that the data support a robust prediction of quality-adjusted price
increases by the merged entity in the post-paid segment of the order of 10–
20%.
6.9. Reaction by other competitors post-merger
(366) The Commission has also analysed how competitors of the Parties in the re-
tail mobile telecommunications market can be expected to react to the Pro-
posed Transaction.
6.9.1. MNOs
(367) Other competitors are unlikely to increase supply or reduce prices in re-
sponse to a price increase by the merged entity. Even assuming competitors
are not capacity constrained, it is unlikely that they would increase supplies
in response to a price increase of the Parties. Since the products are endoge-
nously differentiated in terms of their market positioning, generally accepted
and robust economic theory demonstrates that the profit-maximising re-
sponse of competitors to a price increase would be to increase prices them-
selves.
264
(368) This prediction from theory is supported in this case by a certain amount of
evidence that price increases by one MNO were followed in the past by price
increases of the others. This occurred for example in the context of the ser-
vice fee introduction whereby a flat fee payable by all post-paid customers
was introduced in replacement of various fees previously charged for specific
services such as replacement of lost SIM cards, with a net positive effect on
prices. Such behaviour is consistent with the notion that the various products
available in the market are strategic complements.
(369) The rationale behind this expectation is the following: if the merged entity
were to raise prices, some customers would consider switching to one of the
other two providers who would not have done so in the absence of the mer-
ger. The merged entity will make its calculation balancing this loss of reve-
nue against the higher revenue on the customers who remain. These newly
available customers then increase the demand faced by the other competitors,
as a result of which they have an incentive also to increase prices themselves.
If MNOs have incentives to respond to a price increase of their rivals by
264
This general result was first described by Deneckere and Davidson (1985). "Incentives to form
coalitions with Bertrand competition", Rand Journal of Economics, Vol. 16 no. 4, pp. 473–
486. See also Davis & Garces, Quantitative Techniques for Competition and Antitrust Analy-
sis (2010), pp. 50–53.
87
themselves increasing price, then prices are called "strategic comple-
ments".
265
(370) In its response to the SO, the Notifying Party objects that "whether prices are
strategic complements depends on the specifics of the market setting, in par-
ticular, on the shape of the cost and demand curves" and that therefore it
would be a priori unreliable in the absence of further "theoretical basis to
argue that competitors are likely to increase prices in response to a price in-
crease by a rival".
266
(371) However, the Commission notes that in standard models of oligopolistic
price competition, strategic complementarity of pricing decisions always
arises unless very extreme assumptions apply. The Parties cite in support a
single paper by Buehler and Schmutzler which explores some of these ex-
treme assumptions.
267
In a context that captures that subscribers make calls
both within and across mobile networks, these authors do indeed find that the
normally robust rationale of strategically complementary prices may not al-
ways hold. Nonetheless, they confirm that under standard and reasonable as-
sumptions, strategic complementarity still holds provided that the network
sizes of MNOs are not too different
268
.
(372) After the Proposed Transaction, the MNOs would have rather similar market
shares, especially in terms of new customers which is the best available
measure for competitive strength. Therefore, and because strategic comple-
mentary of prices is rather robustly observed in oligopolistic models, the
Commission considers that that paper provides no reason in this case to de-
part from the robust conclusion that competitors would be very likely to re-
spond to a price increase by a competitor by increasing prices themselves.
(373) In its response to the SO, H3G states that "the claim that A1 and T-Mobile
will not increase supplies to cater for customers switching away from the
merged entity in the event of a price increase is contrary to logic and con-
trary to economic theory. The SO (in effect) suggests that TA and T-Mobile
would turn away new customers even if they had spare capacity available.
This is implausible. Given that both A1 and T-Mobile will have spare capac-
ity available, there is no logical reason for them to turn away additional cus-
tomers if this would result in a positive margin".
269
(374) This claim is manifestly incorrect. Just as the merged entity, its competitors
would also face the same trade-off between attracting additional new cus-
tomers by practising lower prices and cannibalising the flow of customers
265
See for example J. Bulow, J. Geanakoplos, and P. Klemperer, 1985, "Multimarket oligopoly:
strategic substitutes and strategic complements", in: Journal of Political Economy 93, pp. 488–
511.
266
Response to the SO, paragraph 227.
267
S. Buehler, A. Schmutzler, "On the Role of Access Charges under Network Competition", in:
J. Haucap, R. Dewenter, Access Pricing: Theory and Practice, Elsevier 2007.
268
S. Buehler, A. Schmutzler, "On the Role of Access Charges under Network Competition", in:
J. Haucap, R. Dewenter, Access Pricing: Theory and Practice, Elsevier 2007, p. 138.
269
H3G Response to the SO, paragraph 230.
88
who would anyway have switched to them (the so-called infra-marginal cus-
tomers). If this were not so, it would be impossible for any player to recuper-
ate its investments in network capacity, as competitors would force prices
down to marginal cost.
(375) The Parties further claim in the response to the SO that, in effect, the elimi-
nation of a competitor would not matter because consumers have very weak
preferences between operators and they all supply nearly the same thing. In
the response to the Article 6(1)(c) decision, the Parties went as far as claim-
ing that products were homogenous; in the response to the SO that claim is
revised to one of their being "not very highly differentiated". The Parties
state that "the services offered by the mobile network operators are not suffi-
ciently differentiated to provide the basis for some operators being markedly
closer to each other than they are to the other operators. The SO has pre-
sented no evidence to support the view that mobile telecommunications ser-
vices are highly differentiated. The contrary is true: mobile services are
largely commoditised products and therefore the concept of closeness is
meaningless in this industry: There is no evidence to suggest that customers
disregard price over other factors when opting for their mobile network sup-
plier. There are no significant differentiators affecting the product itself. All
Austrian MNOs provide data, voice and SMS services which fully and ade-
quately satisfy the requirements of a customer in need of mobile connectivity.
The ultimate product is the same. There are no other factors, such as the ge-
ographic location of shops, which would suggest that product differentiation
may play a significant role in this industry".
270
(376) This statement misrepresents the SO in several respects. The Commission
has not argued that products are "highly" differentiated and does not dispute
that the basic service offering is similar in a purely functional sense. How-
ever, such a conclusion could be drawn in many consumer markets in which
branding and product differentiation are nonetheless of significant impor-
tance. It is not for the Commission's merger analysis to assess whether con-
sumers have objective reasons for the preferences they display; it is assumed
that, just as undertakings, they make the choices which maximise their own
welfare. Although there are numerous differences in the service offerings
proposed by each of the MNOs, and therefore numerous "objective" reasons
for consumer preferences, the perceived emotional benefits of a product can-
not be simply neglected as they are also reflected in consumers' willingness
to pay. The discussion on branding is proof of the role that the emotional as-
pect of product differentiation plays in the choices of both firms and con-
sumers. That dimension encompasses not only objective facts such as net-
work quality but also the subjective meaning given by consumers to those
facts.
271
270
H3G Response to the SO, paragraph 148.
271
Consumer preferences as expressed in brand choices are routinely taken as a starting point for
the Commission's analysis, without any attempt to uncover the "objective" properties of the
underlying products or the relative importance of "objective" and "subjective" brand charac-
89
(377) The Notifying Party further claims in the response to the SO that the "intro-
duction of the service fee was the result of an industry wide shock (namely,
the introduction of the iPhone and Android smartphones), which led to a
sharp increase in requests for technical services and in the costs associated
with those requests".
272
Therefore, the fact that several MNOs introduced the
SIM card service fees shortly after TA could not be interpreted as an indica-
tion for strategic complementarity of prices.
(378) The notion of an industry wide cost shock is difficult to reconcile with fur-
ther statements of the Parties on the introduction of the service fees. First,
Orange does not mention increased costs for technical services as one of the
reasons for introducing the service fees.
273
Second, to the extent that the costs
of the MNOs are reflected in the charges for their technical service hotlines,
even an increase in the demand for technical assistance does not create any
need to recuperate those costs by means of a service fee.
274
In that context, a
report by Orange states that only H3G includes the technical hotline in the
services covered by the service fee.
275
Third, it appears that the demand for
these services has evolved gradually rather than being an industry wide cost
shock.
276
For these reasons, the alleged industry wide cost shock is unlikely
to have caused the observed pattern of SIM card service fee introductions.
6.9.2. Other service providers (MVNO)
(379) It is possible that if access to the wholesale market were provided under cer-
tain conditions, a generalist and fully fledged MVNO might be able to com-
pete directly and effectively with the MNOs. Under the wholesale access
conditions that MVNOs can obtain now and would receive post-merger, the
reduction in competition at the retail level ensuing from the Proposed Trans-
action cannot be fully and effectively offset by current or potential competi-
tion by MVNOs.
277
MVNOs do not have their own network and can only
compete in terms of added value at the retail level if they have wholesale ac-
cess on competitive terms, which is not the case today and would not be the
case post-merger.
teristics. See for instance Commission Decision of 17. November 2010 in Case No
COMP/M.5658 – Unilever/Sara Lee Body Care, OJ C 23, 28.1.2012, p. 30.
272
Response to the SO, paragraph 227.
273
See Form CO, paragraph 471–472.
274
H3G states that it is the only MNO that offers a technical service hotline free-of-charge. See
See reply of H3G to RFI of 11 May 2012, 10. Document "M.6497_Annex 1.10_Response to
BWB's RFI re introduction of service fee (confidential).pdf" Doc ID 1805, p. 1.
275
See reply of Orange to question 1 of RFI of 11 May 2012, document "Stel-
lungnBWB1208vertraulich.pdf" Doc ID 1833, p. 5. The service fee of Orange appears to con-
tain some technical services such as the "Smartphone starter package", while the service fees
of T1 and TMA appear not to include technical services related to smartphones.
276
See reply of H3G to RFI of 11 May 2012, 10. Document "M.6497_Annex 1.10_Response to
BWB's RFI re introduction of service fee (confidential).pdf" Doc ID 1530, p. 3. In that docu-
ment, H3G states […]*
277
See Sections 6.3.1.2 and 9.1 for an overview of the MVNOs in Austria. It should be noted that
there is currently only one independent MVNO in Austria and that the larger MVNOs belong
to A1, T-Mobile and Orange.
90
(380) There is currently only one independent MVNO active on the Austrian mar-
ket, namely Vectone Mobile, a provider specialising in pre-paid international
calls.
278
The Commission considers that Vectone, which is not a fully-
fledged MVNO, would not pose a competitive constraint in the event of price
increases by the merged entity in particular in the key areas of concern in this
case, namely smartphone bundles and data-only tariffs.
(381) Other service providers
279
referred to by the Notifying Party, such as s-
budget or Ge org:), are pure resellers of MNO services with very small cus-
tomer bases. The Notifying Party submits that resellers account for a negligi-
ble proportion of total subscribers. H3G has sold only approximately […]*
SIM cards via resellers in Austria, a negligible portion of the overall market
consisting of […]* million subscribers.
280
Given the market positions of the
service providers / resellers, it can be concluded that they only play a very
limited role on the market, in particular when compared to the MNOs. This
situation will in all likelihood not change in the foreseeable future.
(382) The Commission therefore concludes that the MVNOs and other service pro-
viders currently on the Austrian market are unlikely to become a competitive
constraint to the merged entity after the merger.
6.10. Framework of analysis as regards the competitive constraint due to Or-
ange in the absence of the merger
(383) According to paragraph 9 of the Horizontal Guidelines "[i]n assessing the
competitive effects of a merger, the Commission compares the competitive
conditions that would result from the notified merger with the conditions that
would have prevailed without the merger. In most cases the competitive con-
ditions existing at the time of the merger constitute the relevant comparison
for evaluating the effects of a merger. However, in some circumstances, the
Commission may take into account future changes to the market that can
reasonably be predicted. It may, in particular, take account of the likely entry
278
Bob, tele.ring and Yesss! are MVNOs currently owned by TA, T-Mobile and Orange respec-
tively. They are part of these MNOs' multi-brand strategies and cannot be considered inde-
pendent players on the market. As opposed to its competitors, H3G pursues a single brand ap-
proach and does not have its own MVNO. This will not change post-transaction, as H3G in-
tends to sell-on Yesss! to TA immediately after acquiring Orange. Yesss! has a market share
of […]*% in terms of subscribers and […]*% in terms of revenues.
279
Service providers or resellers are "partial MVNOs". From the MNO's perspective, there is no
difference between a service provider and a reseller as regards network access and the terms
may sometimes be used interchangeably. However, in general, a pure reseller obtains all of its
offering (network access, back-office functions (billing etc.), SIMs, handsets) from the MNO
whereas a service provider may only obtain network access and certain back office functions
from the MNO and will obtain handsets and other equipment directly from suppliers. In each
case, the partial MVNO will be responsible for branding and marketing towards customers.
Partial MVNOs do not own any network infrastructure. There are no service providers on the
Austrian market. However, over a dozen independent resellers are active on the Austrian mar-
ket; see Form CO, paragraph 126.
280
See Form CO, paragraph 165 (H3G confidential).
91
or exit of firms if the merger did not take place when considering what con-
stitutes the relevant comparison."
281
6.10.1. The view of the Notifying Party
(384) The Notifying Party submits that it could be reasonably predicted that the
competitiveness of Orange "will suffer in the coming years compared to the
status quo. On this basis, it would not be appropriate, for the purposes of the
merger assessment, to compare the post-merger situation merely with the
status quo".
282
(385) Specifically, the Notifying Party argues that Orange has been financially
constrained and will not be in a position to invest in spectrum and the up-
grade of its network with regard to both 3G and the new 4G/LTE technol-
ogy.
283
Necessary capital expenditure for the upgrade of infrastructure and
acquisition of spectrum would amount to EUR […]*. However, due to its
high net debt, Orange would breach certain debt covenants which it has al-
ready entered into in 2012, and waivers of those covenants which have been
granted would expire should the merger not go through. The difficult finan-
cial situation would likely prevent Orange from bearing significant future in-
vestments.
(386) In its response to the SO,
284
the Notifying Party further criticises the Com-
mission's assessment of Orange as a viable competitor on a stand-alone basis
going forward. In particular, it claims that Orange has persistently lost mar-
ket shares. Moreover, Orange is not more price aggressive than the other
competitors but rather an operator of limited and decreasing attractiveness
from the perspective of end customers.
285
(387) A further submission of Orange elaborates on the Commission's failure to
take into account the claim that its network is lagging behind and that signifi-
cant investments would be needed to upgrade it.
286
[…]*
287
(388) The Parties further claim that the Commission was selective in the choice of
internal documents, quoted them in a misrepresentative manner and was
merely speculating on Orange's possible strategies in the absence of the Pro-
posed Transaction. In particular, they claim that it is up to the Commission to
demonstrate how a network sharing agreement would affect competition on
the retail level.
288
281
Horizontal Guidelines, paragraph 9.
282
H3G's Submission of 13 April 2012, p. 1, Doc ID 125.
283
Form CO, paragraphs 279 and following.
284
H3G Response to the SO, paragraphs 159 and following.
285
Form CO paragraphs 269 and following.
286
Submission of Orange of 4 October 2012 "on the treatment of the counterfactual in the Com-
missions Statement of Objections", response to the SO, p. 11–12.
287
[…]*
288
Submission of Orange of 4 October 2012 on the treatment of the counterfactual in the Com-
missions SO, response to the SO, p. 13 and following.
92
6.10.2. The Commission's assessment
(389) For the purpose of its analysis, the Commission assesses a future hypotheti-
cal scenario, namely the likely market outcome in the absence of the merger.
In accordance with paragraph 9 of the Horizontal Guidelines, as a starting
point the Commission assumes that the status quo would continue to apply
and departs from this assumption only if changes can be reasonably pre-
dicted.
6.10.2.1. Absence of a failing firm defence
(390) Neither the Notifying Party nor Orange put forward a failing firm defence in
the sense evoked at paragraphs 89 and following of the Horizontal Guide-
lines. Nor do they suggest that, in the absence of the merger, Orange would
not continue to compete on the relevant market in the near future.
289
6.10.2.2. Development of Orange's market share
(391) In the past, against the background of H3G's rapid growth in the Austrian
mobile telecommunications market, Orange's position as number three was
not affected despite the alleged limited decline in market shares. Moreover,
an internal study carried out by Orange
290
shows that the number of its sub-
scribers recently increased, when comparing the first quarters of 2011 and
2012.
6.10.2.3. Further current indicators of Orange's competitive position
(392) Available indicators do not suggest that Orange's competitive position is ex-
pected to deteriorate significantly in the near to medium term. Notwithstand-
ing the alleged weaknesses of Orange,
291
Orange is doing well or is currently
even number one in a number of important competitive aspects. According to
the Austrian regulator's assessment on customer satisfaction Orange has re-
cently been voted number one on the Austrian market.
292
Business customers
contacted during the Commissions market investigation considered Orange
as an important price innovator and a provider of very flexible tariffs.
293
289
According to paragraph 89 and following of the Horizontal Guidelines, the Commission may
clear a merger if the deterioration of the competitive structure that follows the merger cannot
be said to be caused by the merger. This would require that the following three conditions are
met: First, the allegedly failing firm would in the near future have to be forced out of the mar-
ket because of financial difficulties if not taken over by another undertaking. Second, there has
to be no less anti-competitive alternative purchase than the notified merger. Third, in the ab-
sence of a merger, the assets of the failing firm would have to inevitably exit the market.
290
See "Mitbewerbsvergleich Q1 2012, Market Intelligence, 22. Mai 2012", p. 4, Doc ID 2345.
291
Form CO, paragraphs 266 and following; H3G Response to the SO, paragraphs 159 and fol-
lowing.
292
http://www.orange.at/Content.Node/unternehmen/nummer-1-bei-zufriedenheit/ (retrieved 25
October 2012).
293
See responses to Commission questionnaire 2 to Business Customers and Consumer Associa-
tions; the question was worded as follows: "Please rate [...] the Austrian main retail mobile
network providers (A1, T-Mobile, Orange, H3G) in terms of […] price innovation [and] tariff
flexibility", Doc ID 508.
93
[…]*
294
Overall the internal documents submitted by H3G and Orange do not
suggest that Orange would, in the absence of the merger, no longer be willing
and able to act as a viable and serious competitive constraint on the Austrian
market.
295
(393) The fact that competitors are rated in some internal documents as being
[…]*
296
is not proof that the Commission was selective in its findings to
show the competitive impact of Orange, nor does it contradict the finding
that in the absence of the merger Orange is expected to remain a serious
competitive force on the Austrian mobile telecommunications market.
(394) Benchmarks show Orange's network to be in a state acceptable to customers.
[…]*
297
[…]*
298
According to the latest Connect test of January 2012, the oth-
er MNOs improved their networks in 2011 relative to Orange so that it was
ranked only fourth.
299
Yet, Orange's network quality appears to be still good
enough to attract significant numbers of new customers. Whilst it may be the
case that, as argued by Orange, in order to avoid future degradation of com-
petitiveness due to a relatively less strong network, investments might be
necessary in the absence of the merger, there is no convincing proof that this
would be impossible to achieve. Furthermore, there is no evidence to sug-
gest that, hitherto, the network of Orange has in any way been constrained by
external, imperative factors.
(395) The Commission therefore takes the view that even if Orange's network cur-
rently has some quality and coverage deficits, this results from autonomous
commercial choices which reflect the company's intended market positioning
and the trade-off which it has chosen to make between the costs and benefits
of further investments. Those choices appear to be fully compatible with the
role it plays as a competitor and in no way necessarily to prejudice that role
in the medium term.
6.10.2.4. Orange's plans in the absence of the merger
[The following section discusses Orange's business plan absent the proposed
transaction. The Commission analysed in particular Orange's intentions with
regard to network development and strategic positioning within the market.]
(396) […]*
300
[…]*
301
[…]*
302
[…]*
303
[…]*
304
[…]*
305
294
See Orange's reply to the RFI of 4 July 2012 […]*
295
[…]*
296
H3G´s internal documents do not show that Orange is more competitive than other market
players, response to the SO of 4 October 2012, paragraphs 186 and following.
297
The following were criteria assessed: Service speed, Web Copernicus, Web YouTube, home
page, Email receive, Email send, File download (mean data rate), File upload (mean data rate),
Latency (RTT), YouTube video time to start. See Orange's reply to RFI of 4 July 2012,
110921_Shareholder Committee Meeting_Update Network_EG.ppt, slide 7, Doc ID 4901.
298
See Orange's Reply to RFI of 4 July 2012, 021_Benchmarking_Report_April_2011_T-
MOBILE.ppt, slides 4, 6, and 14, Doc ID 4898.
299
See Form CO, Annex 6.(4).
300
Orange's reply to RFI of 4 July 2012, Business Plan Workshop Tuesday 3 May 2011, Doc ID
4902.
94
(397) […]*
306
[…]*
307
[…]*
308
(398) […]*
309
[…]*
310
[…]*
311
[…]*
312
[…]*
313
(399) […]*
314
[…]*
315
[…]*
316
[…]*
317
[…]*
318
[…]*
319
(400) […]*
6.10.3. Conclusion
(401) On the basis of the above, the Commission concludes that, the relevant com-
parison for evaluating the effects of the merger is constituted by the competi-
tive conditions existing at the time of the merger as set out in paragraph 9 of
the Horizontal Guidelines, namely that Orange would remain a comparably
relevant competitor on the Austrian market for mobile telecommunications
services to end customers as it has been to date.
301
[…]*
302
H3G Response to RFI of 15 June 2012 (questions 1 and 2a-e) –
Pnl_Hutch_Orange_Combo_vSENT, Doc ID 3641.
303
See Orange's reply to RFI of 4 July 2012 -, Business Plan Workshop Tuesday 3 May 2011,
slide 14, Doc ID 4902.
304
Ibid.
305
Orange's response to RFI of 4 July 2012 – Question3_3.1_3.1.3, 131_LT BPlan Oasis base
case FC 04_2012 SCM_HC.ppt, slide 54, Doc ID 4913.
306
Submission of Orange of 4 October 2012, response to the SO, p. 11–12.
307
Orange's response to RFI of 4 July 2012 – Question3_3.1_3.1.3,,"071_111021_Original Min-
utes SCM.pdf", page 6, Doc ID 4913.
308
Orange's response to RFI of 4 July 2012 – Question3_3.1_3.1.3, " 127_120523_Original Min-
utes SCM Orange.pdf", page 3, Doc ID 4913.
309
See Annex 5.4.(15) to the Form CO, "Project Trident- Hundertwasser Synergy case on 8 July
2011", p. 20, Doc ID 405 (Orange confidential).
310
In another internal document from June 2012, the Orange management is contemplating issu-
ing a RAN tender despite the on-going merger proceedings. See Orange's reply to RFI of 4 Ju-
ly 2012, 120620_Shareholder_Network_tender.pptx, Doc ID 4902.
311
By acquiring the 2.6 GHz frequencies, Orange had taken an investment decision in full
knowledge of the fact that the regulator would impose a coverage obligation.
312
Orange's reply to RFI of 4 July 2012111021_Overview Network projects.ppt, slide 5, Doc ID
4901 Compare also for an earlier version Orange's reply to RFI of 4 July 2012,
110712_Shareholder_Meeting_Network_Update_Cobra_Viper_Final.ppt, slide 5, Doc ID
4901.
313
[…]*
314
[…]*
315
[…]*
316
[…]*
317
[…]*
318
[…]*
319
[…]*
95
6.11. Conclusions on non-coordinated effects
(402) The results of the market investigation
320
and its own analysis therefore lead
the Commission to conclude that the elimination of Orange as an independ-
ent network operator and provider of mobile telecommunications services to
end users, and the reduction of operators from four to three would signifi-
cantly impede effective competition in the internal market by means of non-
coordinated effects in the Austrian market for the provision of mobile tele-
communications services to end customers.
7. EFFICIENCIES
(403) Prior to the SO, the Notifying Party did not raise a formal efficiency defence
but submitted that the Proposed Transaction would allow H3G to increase the
role it plays as a competitive force on the market.
321
(404) The Notifying Party argued that, after the merger, H3G would have clear
incentives to continue its growth strategy and would increase the number of
its sites by approximately 50% which would amount to a significant expan-
sion of the implemented capacity. In addition, as a result of the Proposed
Transaction, H3G's competitive position would improve in at least four as-
pects compared to the standalone scenario. In particular, H3G would imme-
diately achieve better coverage and significantly improved network quality,
the nationwide rollout of LTE services could be speeded up significantly, the
increased scale would facilitate future investments and the development of
new services and H3G would be able to offer services in the low end voice
pre-paid segment based on inexpensive 2G handsets.
(405) Moreover, the Notifying Party has claimed that, as a general matter, in oli-
gopolistic markets with economies of scale, a reduction in the number of
competitors may increase consumer welfare.
322
This is not disputed by the
Commission. However, if such an increase in consumer welfare were to ma-
terialise, it would need to be on the basis of efficiencies. Under the Horizon-
320
Responses to Commission questionnaire 2 to Business Customers and Consumer Associa-
tions, Doc ID 508; the questions were worded as follows: "Would the Proposed Transaction
remove an important competitor?" and "In your opinion, what impact, if any, will the Pro-
posed Transaction have […]?".
321
Form CO, paragraphs 334 and following. The Notifying Party expressly pointed out that its
reply to the 6(1)(c) decision did not address the points raised in Section VII of the 6(1)(c) de-
cision concerning the procompetitive effects of the transaction (see " M.6497 - Submission
11_9_12.PDF", Doc ID 5955, p. 5).
322
See also Commission Decision of 13 January 2006 in Case No COMP/M.4036 – TPG
IV/APAX/Q-Telecommunications, OJ C 56, 8.3.2006, p. 11, which concerned the takeover of a
very small operator (2.5% by revenue or 6.5% by subscription) whose customers were to 90%
pre-paid and which did not provide full nationwide coverage. The Commission concluded that
the transaction would not lead to a major change in the structure of the market but could even
enhance competition by creating a stronger player in a better position to compete with the
large incumbents. The situation was therefore very different from this case in which two fully-
fledged MNOs intend to merge and where the market is about to lose the competitive pressure
exercised by a viable competitor.
96
tal Guidelines, the Commission's practice is to assess efficiencies as a coun-
tervailing factor and the burden of proof rests upon the Parties to the Pro-
posed Transaction to establish the existence and significance of the efficien-
cies to the necessary standard of proof.
323
(406) In order for the Commission to take into account pro-competitive effects un-
der the Merger Regulation, efficiencies must be verifiable, likely to be passed
on to consumers and merger specific to the extent that no other practicable
less anticompetitive alternatives exist to achieve the same benefits.
324
(407) Prior to the SO, the Notifying Party did not sufficiently address, let alone
prove, that the requirements to acknowledge such efficiencies under the Hor-
izontal Guidelines were met.
325
Despite the statement in the Article 6(1)(c)
decision that efficiencies would have to be substantiated, the Notifying Party
did not bring forward further evidence in its response to the Article 6(1)(c)
decision.
326
(408) In its response to the SO, the Notifying Party eventually claimed efficiencies
as a formal defence.
327
7.1. Capacity increase
(409) The Notifying Party argues that by combining H3G's and Orange's networks,
the merger would increase the capacity of the merged network by […]*% by
2014 compared to the two standalone networks in the absence of the mer-
ger.
328
This substantial increase in capacity would be made possible by mul-
tiplying the amount of spectrum by the number of sites where the spectrum
would be deployed. This capacity increase would allow for considerably
faster and higher quality services in H3G's network and would allow H3G to
address the problem of imminent bottlenecks in its network effectively. In
particular, the number of H3G's congested sectors would be reduced through
the merger.
329
7.1.1. Verifiability
(410) The Notifying Party claims in its reply to the SO, that the increase in imple-
mented capacity is readily verifiable and cites a financial model, […]*, in
support of this assertion.
330
The Notifying Party further submits that the scale
323
Horizontal Guidelines, paragraph 87.
324
Horizontal Guidelines, paragraph 78.
325
In Form CO, Section 9, there is only a reference to other sections of the Form CO without any
attempt to provide information as to whether the three necessary cumulative criteria for effi-
ciencies (verifiability, merger specificity, benefit to consumers) are met.
326
See page 5 of the response to the Article 6(1)(c) decision: "This submission does not address
the points raised in Section VII of the Decision concerning the procompetitive effects of the
Proposed Transaction."
327
See Section 7.
328
See Form CO, paragraphs 371 and following.
329
See Annex 8.(3) to Form CO, Figures 3, 4 and 6.
330
See H3G Response to the SO, paragraphs 268–272.
97
of the network update following the transaction is described in more detail in
Annexes 6 to 10 to its response.
(411) In its response to the SO, H3G submits that it is self-evident that increased
capacity will benefit consumers by reducing bottlenecks and improving the
speed of the network and cites two studies in support of its theory according
to which, among other things, 7 out of 10 data consumers consider network
quality to be a "very important" selling point.
331
(412) In substance, while the evidence put forward suggests that some network
related efficiencies may be attained through the merger, they have not been
convincingly verified. The […]* submitted by H3G mainly capture the cost
implications of merging the networks.
332
While Annexes 8 and 9 to H3G's
reply to the SO contain information on the quantity of devices that have been
ordered for the merged network, the relation to the computation of the "im-
plemented capacity" provided in Annex 8.3 to the Form CO is at best
vague.
333
Furthermore, the Notifying Party has failed to underpin its assump-
tions with sufficient evidence from internal documents as regards the net-
work size of the merging firms in the stand-alone scenario.
(413) Finally, the claim that H3G's network is already close to congestion does not
seem to be in line with the recent mobile network quality results published in
the "CONNECT" test where H3G had the best network quality in Austria.
334
7.1.2. Merger specificity
(414) As regards merger specificity, the Horizontal Guidelines state that efficien-
cies are taken into consideration provided that there are no other less anti-
competitive means to attain the claimed efficiencies.
335
The Horizontal
Guidelines require that the alternative must be "realistic and attainable".
336
(415) The Notifying Party claims that in order to improve capacity neither building
more sites, nor acquiring more frequencies from a competitor (or, presuma-
bly, in the upcoming auctions), nor relying on domestic roaming and/or spec-
trum sharing are "realistic and attainable" alternatives and presents a number
of reasons why any of those alternatives would be more costly for H3G.
However, the Notifying Party also argues that capacity constraints can be
331
See paragraph 294 of H3G's response to the SO.
332
[…]*
333
For example, it is unclear why on p. 24 of Annex 8 to the reply of the SO, there seems to be
rather flexible per radio unit frequency configuration GSM/LTE on the 1,800 MHz band while
in Table 6 of Annex 8.(3) 20 MHz of the 1 800 MHz band seem to be devoted to LTE.
334
See http://www.connect.de/ratgeber/mobilfunk-netztest-oesterreich-2012-1368672.html (re-
trieved 26 October 2012). In 2011, H3G's network was certified by the independent network
test of the German magazine "Connect" as the best network in any of the German-speaking
countries, being Germany, Austria and Switzerland; see Form CO, paragraph 212.
335
Horizontal Guidelines, paragraph 85.
336
See Horizontal Guidelines, paragraph 85.
98
treated by punctual interventions and that for this reason certain network
costs should be considered as variable.
337
(416) In particular, the Notifying Party argues that H3G has its own and very par-
ticular network vision and therefore, if it were to enter into a collaborative
network-sharing arrangement, it would have to make compromises which are
incompatible with its business strategy.
338
Moreover, H3G had already at-
tempted to negotiate a network sharing agreement with T-Mobile over the
course of many years, but ultimately those negotiations had failed, among
other reasons, due to the lack of a similar network strategy.
339
(417) The Commission, however, cannot rule out alternatives just because they
might be more cumbersome or expensive for H3G to implement. If some
other alternative is realistic and attainable, only the incremental benefit from
a full merger can be considered as a merger-specific efficiency. The men-
tioned alternatives are plausible means of reducing capacity constraints. The-
se are established business practices in the industry concerned. Thus more
evidence would be needed to show why these measures would not be realis-
tically chosen in the absence of the merger.
(418) In particular, a domestic roaming agreement with other MNOs, a joint ven-
ture to develop LTE, large scale network sharing or even a merger only of
the Parties' networks with the commercial and retail assets of Orange remain-
ing active in the market as an independent MVNO
340
cannot be excluded as
possible outside options. These less anti-competitive means of achieving hy-
pothetical efficiencies would not change the number of retail players.
(419) As regards network sharing, the observation that […]* Moreover, it suffices
that any of the Parties – not necessarily involving H3G – could plausibly
achieve similar efficiencies by network sharing. Even if H3G were unlikely
to enter into a network sharing agreement because of its particular business
strategy, it appears plausible from internal documents that Orange and T-
Mobile could have an incentive to enter into such an agreement.
341
337
See paragraphs 258 and following of H3G's response to the SO.
338
H3G's response to the SO, paragraphs 287–289.
339
The Notifying party also contends that the Austrian telecoms regulatory authority TKK would
view network sharing agreements critically. The fact that the TKK was closely involved in
past detailed network sharing discussions (see for example H3G reply to Question 9 of RFI of
27 July 2012) shows that large scale network sharing is not ruled out per se. The TKK also
sees network sharing as a viable alternative to the merger; Stellungnahme der Telekom-
Control-Kommission zum Auskunftsverlangen der Europäischen Kommission (Doc ID 5890,
p. 3).
340
Orange remaining active at the retail level would allow all the efficiencies claimed by the
Parties to be realised at network level. Orange as an MVNO would differ from a new MVNO
that enters the market because Orange could make use of its existing sales channel and exist-
ing customer base and would therefore presumably attract more gross adds than an MVNO en-
trant. Moreover, due to its size it would have more bargaining power and thus likely achieve
more favourable access terms in the long run.
341
Notably, a network JV between T-Mobile and Orange was an alternative already considered
by Orange. It would appear that on 25 July 2011, all preparations for such a JV were com-
99
(420) The claim that H3G's endowment constitutes an imminently binding capacity
constraint, and that it cannot be relieved by measures other than acquisition
of spectrum and sites is not substantiated by the Parties.
342
On the one hand,
the Notifying Party argues that H3G would only build a small number of new
sites in the absence of the merger.
343
On the other hand, it argues that H3G
will likely experience congestion by 2014 under such a scenario. It has not
been substantiated why H3G would not have incentives to build more sites
(especially more than 700 LTE sites when UMTS is congested), acquire ad-
ditional frequencies from competitors or rely more intensely on domestic
roaming. The Parties have not produced evidence by, for example, independ-
ent network engineers to prove the binding nature of the constraint.
7.1.3. Benefit to consumers
(421) H3G submits that, given that the improved network quality is a demand-side
efficiency, a quantification of the benefit to consumers is neither necessary
nor possible.
(422) Moreover, the Notifying Party claims that H3G would hit a capacity ceiling
if the capacity were not to be increased through the merger.
344
This would
imply that, since H3G would be approaching a constraint, its pricing would
become less competitive in the absence the merger.
345
(423) The Commission considers that subscribers can benefit from higher network
capacity only insofar as this has a positive effect on network quality (for ex-
ample, through less congestion), or induces H3G to offer lower prices. A
subscriber does not derive any benefit from the fact that the network has
more capacity per se.
(424) Moreover, the fact that higher network quality would be experienced directly
by subscribers does not mean that they would have a net benefit from the
merger. In particular, if not constrained by enough competitive pressure, the
merged entity could in principle increase prices so as to partially or wholly
claw back any benefits at the customer level.
346
Although this issue was set
out by the Commission at the Oral Hearing, H3G has not brought forward
any justification of why benefits from additional network capacity should
remain with consumers.
(425) While the assertion of more aggressive pricing in the absence of imminent
capacity constraints may be true in the abstract, the Notifying Party has not
provided sufficient evidence to prove that such will in fact be the case.
pleted in order to launch integration in the last quarter of 2011. See slide 2 of Annex 5.4.(2) to
the Form CO, […]* and Section 6.10.
342
A discussion of the traffic capacity implications of network size is available at
http://www.nokiasiemensnetworks.com/system/files/document/Mobile_broadband_A4_26041
.pdf (retrieved 26 October 2012).
343
Form CO, paragraph 514.
344
See response to the SO, paragraph 265.
345
See Form CO, paragraphs 505 and following.
346
See also Commission Decision of 1 February 2012 in Case No COMP/M.6166 – Deutsche
Börse/NYSE Euronext, paragraph 1178 and following.
100
(426) For example, to the extent that the capacity constraint is already imminent
and could not be addressed in any other way, then prices should already re-
flect it. No evidence of this happening or being discussed has been pointed
out in that regard, although it would have been possible for the Parties to do
so. It follows that the claim that H3G’s pricing behaviour will imminently be
affected by its capacity limits cannot be sustained.
(427) Therefore, while the alleged effects of both increased network quality and
more aggressive pricing as a result of more available network quality appear
theoretically appealing, the Notifying party has failed to meet the required
burden of proof for these efficiencies to be taken into account.
7.2. Faster LTE rollout
7.2.1. Verifiability
(428) The Notifying Party alleges that the Proposed Transaction will allow H3G to
roll out LTE nationwide within a short time period. In support of this claim it
provides evidence of internal documents outlining the company's plans with
regard to LTE rollout.
347
(429) However, H3G does not take into account the possibility that, currently, Or-
ange could itself roll out LTE on the 1 800 band. While financial constraints
are argued by Orange to be an issue, there are some internal documents that
show that a planning basis exists.
348
H3G has also failed to assess the benefit
to consumers of a faster rollout of LTE by itself.
7.2.2. Merger specificity
(430) The Parties have argued in the Form CO why, in the absence of the Proposed
Transaction, the LTE rollout would happen more slowly, less effectively and
less cost-efficiently.
349
The Parties have also explained why, […]*.
(431) However, there are other alternatives that would allow for LTE rollout […]*
(432) Although these alternatives may be less advantageous for H3G, they pertain
to industry standard practice and must therefore be taken into account in this
analysis.
350
The Commission therefore holds that faster LTE rollout is not
merger specific.
7.2.3. Benefits to consumers
(433) The Notifying Party suggests that the Proposed Transaction would enable
H3G to modernise Orange's 2G network to the faster LTE technology, pro-
viding consumers with much better service far sooner than would have been
possible in the absence of the Proposed Transaction.
347
See references in H3G's response to the SO, paragraphs 298 and following.
348
[…]*
349
See Form CO, paragraphs 309 and following.
350
See also non-confidential RTR reply to Question 5 by email of 24 October 2012.
101
(434) As explained in recital (424), the issue of claw back still arises and the Noti-
fying Party has not shown to what extent this efficiency, if it arose, would
fully benefit consumers.
7.3. Improved network coverage
(435) The Notifying Party claims that the coverage of the combined network would
be superior to the current coverage of H3G's and Orange's network and al-
leges that the Commission does not challenge that the efficiencies relating to
improved network coverage are verifiable, merger-specific and benefitting
consumers.
351
(436) The Commission's reservations also prevail with regard to the question of
improved network coverage.
(437) As to the verifiability of improved network coverage, the Notifying Party's
assertions that the coverage of the unified network would increase after the
merger from […]*% (H3G) and […]*% (Orange) for 3G coverage respec-
tively to […]*% of the population are a mere statement of intent and not a
verifiable piece of evidence. Furthermore, H3G has also failed to show an
identifiable positive impact on consumers which is not marginal.
(438) Moreover, increased network coverage can – just like faster LTE roll-out or
capacity increases – also be attained through other means which are perfectly
attainable and realistic albeit perhaps less attractive to H3G. The Notifying
Party can build new sites, or enter into a network sharing agreement with an-
other MNO or acquire frequencies in the 800 MHz band which has better
propagation characteristics to cover rural areas. The same holds true for Or-
ange. Therefore, the merger specificity of the claimed improved network
coverage is not established.
(439) Finally, the Commission does not, in principle, doubt that improved network
coverage could benefit consumers, but considers that this cannot be taken as
granted for the reasons set out in recital (423).
7.4. Reduction of alleged scale disadvantages
(440) H3G claims that as the smallest operator in the market it has considerable
scale disadvantages vis-à vis A1 and T-Mobile. The Proposed Transaction
would improve H3G's competitiveness in various ways, including by facili-
tating the upcoming investments and generating cost savings that would be
used to develop new services and to price more competitively.
(441) H3G claims that its […]* shows substantial network related OPEX and
CAPEX savings compared to the expected aggregated expenditure under the
two stand-alone networks.
352
(442) While the Notifying Party verifies the level of network related savings by
means of internal documents, it has failed to prove merger specificity. As ex-
351
See paragraphs 308 and following of H3G Response to the SO.
352
See H3G Response to the SO, paragraph 312 and Annex 12 to the response. The Notifying
Party only focuses on network-related efficiencies.
102
plained in recitals (418) and (419), there are other plausible alternatives such
as network-sharing that would have to be considered. Only the efficiencies in
addition to savings realised by those alternatives could potentially be consid-
ered as merger-specific. Given that it remains unclear to what extent the
claimed cost reductions are indeed merger specific, the Commission cannot
take into account those alleged benefits.
(443) Finally while the Commission acknowledges that, in theory, consumers may
be able to profit from "new services" or "more aggressive pricing", the mere
assertion of benefits does not suffice. The Notifying Party's claims in the re-
ply to the SO are so vague that any benefit to consumers is a theoretical
proposition that can hardly be measured.
(444) In particular, the Notifying Party has not set out to what extent cost savings
lead to a reduction of marginal costs and would thus likely be taken into ac-
count in pricing decisions. However, […]*
353
. Hence, even if those savings
were merger-specific, the fact that H3G plans to have fewer customers than
H3G and Orange in their stand-alone forecasts would suggest that the benefit
to consumers from those efficiencies would not outweigh the negative effects
from the concentration.
7.5. Conclusion
(445) The efficiencies claimed by the Notifying Party have not been shown to be
verifiable, merger specific and to the benefit of consumers. Therefore, they
cannot be taken into account in order to offset the competitive harm resulting
from the Proposed Transaction.
8. COORDINATED EFFECTS
(446) According to case law
354
and the Horizontal Guidelines,
355
it must be estab-
lished in order to assess coordinated effects that a Proposed Transaction will
make coordination more likely, more effective or more sustainable. The anal-
ysis needs to focus in particular on: (i) the ability to reach terms of coordina-
tion; (ii) the ability to monitor deviations; (iii) the existence of a credible de-
terrent mechanism if deviation is detected; and (iv) the reactions of outsiders
such as potential competitors and customers.
(447) In the Article 6(1)(c) decision dealing with the Proposed Transaction the
Commission did not rule out the possibility that the Proposed Transaction
may also lead to a weakening of competitive pressure as a result of coordi-
nated effects. Those coordinated effects would result in prices on the market
rising higher than if they were dictated only by the individual, non-
coordinated, profit maximising behaviour of each individual competitor.
353
See H3G Response to the SO, paragraph 312 and Annex 12 to the response.
354
Case T-342/99, Airtours v Commission [2002] ECR II-2585; T-464/04, Impala v Commission
[2006] ECR II-2289.
355
Horizontal Guidelines, paragraphs 39–57.
103
(448) The Commission found that some characteristics of the Austrian mobile tele-
communications market may be conducive to coordination and some past
parallel behaviour of the Austrian MNOs could point to co-ordination.
356
However, the indications did not meet the requisite standard of proof the
Commission has to meet according to the case law,
357
namely a significant
impediment to effective competition leading to coordinated effects.
(449) In any event, even if coordinated effects in the market for mobile telecom-
munication services to end customers were assumed, the fact would remain
that the commitments proposed by the Notifying Party aim to facilitate mar-
ket entry and thus also address possible coordinated effects. Hence, it can be
ruled out that the transaction as modified by the commitments would lead to
a significant impediment to effective competition in the form of coordinated
effects on the Austrian market for mobile telecommunications services to end
customers.
9. OTHER MARKETS
(450) The Proposed Transaction does not give rise to competition concerns on the
following markets discussed in Sections 9.1 to 9.3.
9.1. Wholesale access and call origination on public mobile telephone net-
works
(451) Wholesale network access is provided by MNOs to MVNOs. This includes
the provision of a range of wholesale telecommunications services on a mo-
bile telephone network for the purpose of providing retail mobile communi-
cations services to end users. The wholesale market for those services is
therefore (i) on the supply-side, the MNOs which own their mobile networks
and (ii) on the demand-side, the MVNOs who seek access to the MNO net-
work in order to provide their retail services.
(452) Currently, only Vectone Mobile qualifies as an independent MVNO on the
Austrian market. It is hosted by TA and has negligible market shares (about
[0-5]*% in terms of subscribers, voice and data share). Other MVNOs like
tele.ring, bob or Yesss! are not independent operators but only instruments
that serve their parents multi-brand strategy. The MVNO Tele2 left the mar-
ket in 2008; it had previously been hosted by Orange (former "One").
356
Parallel pricing behaviour may be difficult to distinguish in practice from the expectation that
rivals also have a unilateral incentive to follow price increases with price increases of their
own, as discussed in Section 6.9.1 above.
357
See, to that effect, Case T-342/00 Petrolessence and SG2R v Commission [2003] ECR II-
1161, paragraph 101, and the case-law cited; Case C-12/03 P Commission v Tetra Laval
[2005] ECR I-987, paragraph 38; and Case T-87/05 EDP v Commission [2005] ECR II-3745,
paragraph 63.
104
(453) H3G does not offer wholesale access to any full MVNOs at the moment.
Orange does not offer wholesale access to independent MVNOs.
358
(454) The Austrian wholesale network access market therefore exhibits a signifi-
cant lack of activity compared to the markets in other Member States. In its
Decision in Case COMP/M.4748 – T-Mobile/Orange Netherlands, the
Commission found that the Dutch mobile telephony market was character-
ised by the presence of approximately 50 MVNOs and Service Providers,
with Tele 2 and Debitel being the largest ones.
359
Likewise the Commission
established in 2010 that 25 MVNOs were active the UK mobile communica-
tion market.
360
(455) In its Article 6(1)(c) decision, the Commission did not rule out the possibility
that the Proposed Transaction might also lead to competition concerns on the
wholesale market for call origination and network access given that MVNOs
would have fewer options to enter the market due to the elimination of Or-
ange. The merger could therefore increase the likelihood of a high cost of en-
try for MVNOs.
(456) During its market investigation, the Commission found some indications that
the merger might possibly affect access opportunities for MVNOs. However,
there is no need to come to a final decision in that respect, as the commit-
ments proposed by the Notifying Party aim to facilitate market entry and thus
equally address and rule out the possibility that the transaction would lead to
negative effects on the Austrian wholesale market for network access and
call origination.
9.2. Wholesale market for international roaming
(457) The notified concentration would lead to a horizontal overlap between the
Parties' activities on the wholesale market for international roaming in Aus-
tria. However, the Parties' combined market share is less than 10% on that
market. Therefore, the market for international roaming would not be hori-
zontally affected.
(458) There is also a vertical relation between the wholesale roaming services in
Austria and the provision of mobile telecommunication services to end cus-
tomers in the Member States where the HWL Group telephony companies
("3 Group") are active, namely Denmark, Ireland, Italy, Sweden and the
United Kingdom.
(459) This vertical link does not give rise to any affected markets because (at the
upstream level) the market share of Orange (or even of the Parties combined)
is below 10%. At the downstream level, the market share of each member of
358
For completeness the Parties note that Orange provides access to its network to Eety, a small
provider of mobile telecommunications services in Austria, which is jointly controlled by Or-
ange through a 25.1% equity stake.
359
See Case No COMP/M.4748 – T-Mobile/Orange Netherlands, paragraph 28.
360
See Case No COMP/M.5650 – T-Mobile/Orange, paragraph 41.
105
the 3 Group in each Member State in which it offers retail mobile communi-
cations is also below 25% on the basis of market shares of existing custom-
ers.
(460) There is also a vertical link between the Austrian retail mobile communica-
tions market, on which both H3G and Orange operate and each of the foreign
national markets for wholesale international roaming services, where the 3
Group companies are active, namely Denmark, Ireland, Italy, Sweden and
the United Kingdom.
(461) The Notifying Party submits that this vertical link does not give rise to an
affected market because (at the upstream level) the market share of each of
the 3 Group companies for international roaming is below 25% in all coun-
tries in which it is active in the EEA. At the downstream level the market
share of Orange (even when combined with H3G) on the retail mobile com-
munications market in Austria is below 25%.
(462) For completeness it is noted that international roaming is (in any event) sub-
ject to sector-specific regulation at Union level
361
which includes caps on
wholesale charges and imposes certain information obligations. Further,
MNOs generally conclude many bilateral agreements in order to maximise
the quality and coverage of their roaming services.
(463) Accordingly, this vertical link does not give rise to an affected market. The
transaction is therefore unlikely to lead to a serious impediment to effective
competition in relation to the wholesale market for international roaming.
9.3. Wholesale market for mobile call termination
(464) There is no substitute for call termination on each individual network since
the operator transmitting the outgoing call can reach the intended recipient
only through the network to which the recipient is connected. Each individ-
ual network therefore constitutes a separate market for termination.
362
There-
fore, there is no horizontal overlap between the Parties' activities on this
market, that is to say, each party is active on a different market.
(465) Since MNOs need to ensure an end-to-end connection to their subscribers,
the Parties' activities in the Austrian market are, however, vertically linked.
The Austrian market for the provision of retail mobile telecommunications
services, on which Orange is operating, is vertically linked to the markets for
wholesale call termination services on the 3 Group companies' mobile net-
works in Denmark, Ireland, Italy, Sweden and the United Kingdom.
(466) In addition, the Austrian market for call termination services on Orange's
mobile network is vertically linked to the different national markets for the
provision of mobile telecommunications services to end customers in the
Member States where the 3 Group companies operate outside Austria (Den-
mark, Ireland, Italy, Sweden and the United Kingdom).
361
Regulation (EC) No. 717/2007 of the European Parliament and of the Council of 27 June 2007
on roaming on public mobile telephone networks (OJ L 171, 29 June 2007, p. 32).
362
Case No COMP/M.4947 – Vodafone/Tele2 Italy/Tele2 Spain, paragraph 13.
106
(467) According to the market definition used in previous Commission deci-
sions,
363
each operator has a 100% share of the market for call termination
services on their respective mobile network.
(468) H3G's call termination services in Austria and the 3 Group's termination ser-
vices in Denmark, Ireland, Italy, Sweden and the United Kingdom give rise
to affected markets. At the downstream level, the combined share of H3G
and Orange is below 25%.
(469) Furthermore, Orange's call termination services in Austria give rise to a tech-
nically affected market. At the downstream level, H3G's and H3G's sister
companies' shares are well below 25% on those vertically affected markets
(in Denmark, Ireland, Italy, Sweden and the United Kingdom).
(470) However, the Proposed Transaction would not lead to any anticompetitive
foreclosure effects on any of those markets.
(471) Firstly, the Austrian market for the provision of wholesale mobile call termi-
nation services is subject to regulatory analysis by the national regulators,
364
in order to ensure that access is granted on reasonable conditions preserving
effective competition. Pursuant to a decision dated 15 June 2009,
365
the TKK
subjected the Austrian MNOs to obligations to ensure non-discrimination and
interconnection as well as obligations to publish a reference offer for mobile
termination services and to ensure cost-based pricing in mobile termination
fees. In order to implement the cost-based pricing obligation, specific fees
were defined for the mobile termination services. The TKK also held that the
termination fees should be reduced gradually from 4.50 euro cents to 2.01
euro cents at six-months intervals.
366
Therefore, given that termination tariffs
are regulated, it is ensured that the mobile termination rates remain reason-
able and non-discriminatory.
(472) Secondly, in principle, and in line with previous Commission decisions,
367
the Commission considers that discrimination against Austrian operators oth-
er than H3G/Orange would be technically impossible since operators receive
most of their international traffic from international carriers (who act as in-
termediaries between the telecommunications operators) and, therefore, can-
not identify in most cases the exact origin of the international traffic termi-
nated on their mobile networks.
363
For example Case No COMP/M.4748 – T-Mobile/Orange Netherlands, paragraph 62; Case
No COMP/M.5650 – T-Mobile/Orange, paragraph 161.
364
Pursuant to Section 1 (9) of the Telecommunications Markets Ordinance 2008 (Telekommu-
nikationsmärkteverordnung 2008, TKMVO 2008).
365
TKK decisions of 15 June 2009, mobilkom, TMA, Orange, H3G, M 1/08.
366
Form CO, Annex 6.(23) – RTR, Communications Report 2009, p. 72 and following.
367
Commission Decision of 24 October 2005 in Case No COMP/M.3920 – France Télé-
com/Amena, OJ C 289, 22.11.2005, p. 5, paragraphs 35 and following; Commission Decision
of 10 January 2006 in Case No COMP/M.4035– Téléfonica /O2, OJ C 29, 4.2.2006, p. 14,
paragraph 36; Case No COMP/M.5650 – T-Mobile/Orange, paragraph 177.
.
107
(473) Thirdly, the Notifying Party submits that there is no risk that H3G or the 3
Group companies will (in respect of its network in any country) cease to need
or make available wholesale call termination services, as this would only un-
dermine the retail mobile offering of H3G and the 3 Group in each country in
which it is active (because H3G and the 3 Group companies would, in effect,
restrict their end customers from making/receiving calls to/from other net-
works)
(474) On the basis of the above, the Commission concludes that the Proposed
Transaction is unlikely to lead to a serious impediment to effective competi-
tion in relation to the wholesale market for mobile call termination services.
10. THE VIEWS OF INTERESTED THIRD PARTIES
(475) The following section deals with the views of interested third parties. The
observations by T-Mobile and Tele2 mainly address possible commitments
that could eliminate the competitive concerns of the merger. They are there-
fore dealt with here and not earlier in the Decision.
10.1. T-Mobile Austria
(476) On 22 March 2012, the Commission received a complaint about the Pro-
posed Transaction from T-Mobile, the second-largest MNO in Austria.
368
T-
Mobile argues that while further consolidation in the Austrian mobile sector
is inevitable and will not necessarily raise concerns, the proposed merger in
its current form would be harmful to competition. The Commission would
have to ensure that competition among the remaining players continues to be
effective, in particular in relation to LTE.
(477) According to T-Mobile, in Austria, the merged entity would have significant
spectrum holdings and it would be the only MNO with a contiguous 20 MHz
block in the 1 800 MHz spectrum band. The merged entity would also have a
time advantage of roughly 2 years in relation to the implementation of a na-
tion-wide LTE network, together with A1 following the acquisition of 900
MHz block from Orange.
(478) In the absence of the merger, because of the current inefficient spectrum dis-
tribution, the 4 MNOs would have an incentive to reshuffle their spectrum
holdings in order for each to have sufficient contiguous spectrum to build an
LTE network. Post-merger, with the Orange spectrum being sold to H3G and
TA (A1), there would no longer be an incentive to reshuffle.
(479) As a result, T-Mobile would not be able to form a contiguous block of spec-
trum and would be able to launch a nation-wide LTE service only signifi-
cantly later than the merged entity and TA, its existing capacity disadvan-
tages would be entrenched and its long-term ability to compete undermined.
(480) Therefore, in order to protect effective competition between the remaining
players in particular in relation to LTE and following the practice in previous
368
See Doc ID 58.
108
Commission decisions, T-Mobile called for structural remedies that would
include the divestiture of spectrum and towers/sites in its favour. In addition,
T-Mobile submits that access of MVNOs to the networks of the Austrian
MNOs has never been a problem and therefore an MVNO remedy is not the
right remedy in this case.
(481) The Commission agrees that a structural commitment is necessary to make
up for the loss of competition, which would result from the Proposed Trans-
action. The Commission considers that the right commitment should allow a
new MNO entrant to acquire the divestment spectrum
369
and be able to roll
out LTE in competition with the remaining MNOs. In addition, the Commis-
sion considers that at least one strong and competitive MVNO is necessary to
ensure fast entry into the Austrian retail mobile telecommunications market,
also in relation to LTE.
(482) The Commission considers that a structural commitment by the Notifying
Party to the advantage of one of the remaining MNOs would not remedy the
competition concerns. On the contrary, it could lead to a further concentra-
tion of the existing spectrum holdings and further increase the barriers to en-
try for new players on the market.
(483) Moreover, as regards the question of the number of LTE networks after the
Proposed Transaction, T-Mobile has not provided any proof that it would be
less interested in investing in LTE in order to remain a competitive player on
the Austrian market. In any event, a structural remedy allowing for the entry
of a new MNO in combination with the entry of MVNOs, which would offer
LTE ensures that there is a sufficient number of competing LTE networks,
out of which Austrian retail mobile telecommunications customers could
choose post-merger.
(484) As regards the lack of contiguity, the Commission reviewed a large number
of internal strategy documents of the Parties and their competitors and did
not identify spectrum reshuffling as the most likely alternative scenario in the
absence the present transaction. Furthermore, spectrum reshuffling can be
achieved by way of commercial agreements with the other Austrian MNOs,
or by way of regulation to ensure an efficient distribution of spectrum. The
Commission therefore questions the merger specificity of this concern.
10.2. Tele2
(485) Tele2 is active in Austria as a fixed-line operator offering voice, broadband
internet and data network services to residential and business customers.
(486) Tele2 submits that the Proposed Transaction would have a negative impact
on competition in the Austrian telecommunications market and would lead to
an increase in consumer prices and a reduction of consumer choice. It would
facilitate the oligopolistic market behaviour of the remaining three MNOs
post-merger.
369
See Recital (526).
109
(487) The Commission considers that the proposed remedy package addresses
those concerns.
11. GENERAL CONCLUSION OF THE COMPETITIVE ASSESSMENT
IN THE RELEVANT MARKETS
(488) The Commission considers that the Proposed Transaction would likely lead
to a significant impediment to effective competition on the basis of non-
coordinated effects on the market for mobile telecommunications service to
end customers in Austria.
12. COMMITMENTS SUBMITTED BY THE NOTIFYING PARTY
12.1. Procedure
(489) Where a concentration raises competition concerns which could lead to a
significant impediment to effective competition, the parties to a transaction
may seek to modify the concentration so as to resolve those concerns identi-
fied by the Commission with a view to having the merger cleared.
(490) In order to address competition concerns identified following the first phase
market investigation in the market for mobile telecommunication services to
end customers the Notifying Party submitted commitments pursuant to Arti-
cle 6(2) of the Merger Regulation on 20 August 2012. Those commitments
(hereafter the "First Commitments") were subsequently market tested in the
second half of August 2012 ("First Market Test"). Taking account of the re-
sults of the First Market Test in the SO sent out on the 20 September 2012
the First Commitments were assessed and their remaining deficiencies point-
ed out.
(491) On 9, 19, 24 and 29 October 2012 and further on 11 and 12 November 2012,
in the light of the results of the First Market Test and the competition con-
cerns communicated to the Notifying Party, a fundamentally revised com-
mitments package was submitted pursuant to Article 8 (2) of the Merger
Regulation. The ultimate consolidated document ("Final Commitments") is
in Annex III to this Decision.
(492) Besides the commitment to conclude an upfront MVNO agreement the Final
Commitments consist of improved provisions for wholesale access available
to MVNO's as well as a divestiture of spectrum package opening the market
to a potential MNO entrant.
(493) The Commission market tested ("Second Market Test") and assessed the Fi-
nal Commitments in view of their ability to eliminate the competition con-
cerns, in line with the Commission notice on remedies acceptable under
Council Regulation (EC) No 139/2004 and under Commission Regulation
(EC) No 802/2004 (the "Remedies Notice").
370
370
OJ C 267, 22.10.2008, p.1.
110
12.2. Description of the First Commitments
(494) On 20 August 2012 the Notifying Party submitted commitments with the
intention to address the competition concerns identified following the first
phase market investigation in the market for mobile telecommunication ser-
vices to end customers and in the market for wholesale access and call origi-
nation.
(495) H3G committed to make available wholesale access to 30% of its network
for up to 16 MVNOs in the coming 10 years, enabling them to offer mobile
communication services to end customers in Austria. In addition H3G pro-
posed upfront
371
to enter into an agreement with an MVNO, subject to ap-
proval by the Commission.
(496) The details of the terms upon which access was to be made available were to
be published on H3G's website in the form of a "Reference Offer".
(497) The addressees were MVNOs who wish to provide mobile telecommunica-
tion services to end customers under their own brand name, provided that
they were not controlled by an MNO active in Austria. Different types of
MVNOs, including those who have a limited amount of own spectrum, full
MVNOs and those who would need – in part or entirely – additional core
network infrastructure from third parties or possibly from H3G were in-
cluded.
(498) H3G did not commit to carry out the technical implementation with more
than two MVNOs at any one time. However, technical implementations
which continue for more than 12 consecutive months were not counted in
this limit.
(499) The wholesale prices were set and no minimum volumes or minimum reve-
nues were foreseen in the Reference Offer. For voice and SMS transactions,
per unit prices were applicable (for both the origination and termination
legs). For data transactions, the MVNO had a choice of unit pricing: either a
single unit price or a tiered unit price. On-net calls between MVNO’s cus-
tomers were to be charged as a single transaction.
(500) In addition, an MVNO could elect a tariff offered by H3G to which retail
minus pricing was foreseen. Retail minus pricing was only available for data
access SIM-only services (and not available for other products or market de-
velopments such as the so-called near field communication offerings, handset
subsidies or content offerings). In that case H3G was supposed to charge the
MVNO for packet switched data transactions at a 25% discount on the retail
price H3G charges its own customers under the relevant tariff.
(501) Prices were subject to retail price indexation over time. H3G committed to
negotiate in good faith to agree a reasonable price indexation mechanism tak-
ing account of the ability of the MVNO to offer competitive products and
services to end users. Reasonable price indexation mechanisms could include
371
A commitment is "upfront" if the notifying party commits not to close the proposed transac-
tion before it has implemented the commitment itself.
111
an index based on retail prices published by the RTR or an index based on
the prices of H3G.
(502) In the Reference Offer a so called "Base Rate" per unit (voice, SMS, data)
and a "Discount Rate" per unit were foreseen. The Discount Rate was sup-
posed to be applicable to all units purchased after a specified annual "Dis-
count Threshold" had been reached.
(503) The annual Discount Thresholds and corresponding ceilings were set for the
first four years, after that H3G proposed to negotiate with MVNOs to agree
on thresholds and ceilings for subsequent years of the MVNO Agreement.
Alternatively “fall back” thresholds and ceilings were applicable.
(504) The Reference Offer included – in principle – access to LTE technology,
however, the payable charges were subject to prospective separate negotia-
tions with H3G.
(505) Furthermore MVNO's were asked to provide H3G with different forecasts on
data, volumes, customers and other information. If the MVNO did not
achieve or exceeded the forecasted volumes compensatory penalties were to
be applied.
(506) A fast-track dispute resolution procedure had been put in place for disputes
arising between MVNOs and H3G during their negotiations. If H3G and the
MVNO had not agreed upon the terms of the MVNO Agreement within a pe-
riod of five months and their CEOs had not resolved the matters in dispute
within two additional weeks, a fast-track dispute resolution procedure was
foreseen. The subsequent decisions of the expert panel, under supervision of
the "Monitoring Trustee", were final and binding on the parties.
(507) Finally H3G committed not to complete the acquisition of Orange Austria
before it had entered into an MVNO agreement based on the Reference Offer
with one MVNO which would have to be approved up-front by the Commis-
sion ("upfront clause").
(508) The First Commitments had foreseen an independent Monitoring Trustee,
appointed to monitor H3G’s compliance with the commitments and reporting
to the Commission periodically.
12.3. Assessment of the First Commitments
(509) The First Commitments were not suitable to eliminate the competition con-
cerns that the Proposed Transaction would lead to a significant impediment
to effective competition on the market for mobile telecommunication ser-
vices to end customers in Austria. On the basis of the results of the First
Market Test the deficiencies of the commitments were pointed out in the SO
on 20 September 2012.
(510) According to the Remedies Notice (paragraph 9), the Commission only ac-
cepts commitments that are deemed capable of rendering the concentration
compatible with the internal market so that they will prevent a significant
impediment to effective competition. The commitments have to eliminate the
competition concerns entirely and have to be comprehensive and effective
from all points of view. Furthermore, commitments must be capable of being
112
implemented effectively within a short period of time as the conditions of
competition on the market will not be maintained until the commitments
have been fulfilled.
(511) The Commission considers that an effective way of resolving the competition
concerns is to create the conditions for the emergence of new competitive en-
tities (paragraph 22 of the Remedies Notice). This could take the form of
structural remedies that could consist of divesting sufficient assets to create a
new entrant with its own mobile network (that is to say, a new MNO) and
could include spectrum, sites (masts and antennas), customers, brands etc.
(512) The Commission explained this to the Notifying Party in State of Play meet-
ings held on 29 June, 23 July, 6 August and 9 September 2012.
(513) In order to determine if the First Commitments could possibly be accepted as
a suitable, sufficient and effective remedy to completely eliminate all compe-
tition concerns, the Commission put the proposed remedy to a market test on
21 August 2012.
(514) As elaborated in detail in the SO,
372
although the results of the First Market
Test showed that an MVNO access remedy triggered actual or potential in-
terest of a number of MVNOs, market participants pointed to a number of
important deficiencies where significant improvements would have to be im-
plemented to ensure the effectiveness of such a remedy. MVNOs pointed out,
inter alia, that the inclusion of penalty payments for not reaching short-term
forecasts was inappropriate and could undermine any pro-competitive effect.
In addition, many MVNOs criticized the extensive in-formation requirements
to which the MVNOs would be subject under the Commitments. The major-
ity of MVNOs also found that more concrete criteria for future LTE technol-
ogy and prices needed to be fixed in advance.
(515) In particular the Austrian competition authorities (Federal Competition Au-
thority, BWB, and the Federal Cartel Prosecutor) as well as the Telecoms
Regulator (RTR, TKK) argued against accepting the offered remedy pack-
age. In their view divestiture remedies would be needed to make up for the
loss of Orange.
(516) The Commission considered that the First Commitments would not be effec-
tive as a remedy for an important part of the market in the future, if there
were no clear criteria for new technologies (LTE). Furthermore, the Com-
mission took into account the disincentives for MVNOs resulting from pen-
alty payments for not reaching the forecasts. Additionally, the Commission
found the detailed exchange of information between MVNOs and H3G to be
neither necessary nor appropriate in a market with so few participants and
MVNOs being dependent on the network of H3G. Whereas the relationship
between H3G and the MVNO is a relationship between wholesaler and cus-
tomer, from the end-customers' perspective on the market for mobile tele-
372
See Section 8.2 of the SO.
113
communication services the products are offered by direct competitors, also
active on the same horizontal market.
(517) Overall, in the light of the fact that the proposed MVNO access remedy
would have to make up for the loss of competitive pressure exercised by an
MNO having its own network, the Commission explained in the SO that the
First Commitments did not entirely offset the significant impediment to ef-
fective competition brought about by the Proposed Transaction.
12.4. Description of the Final Commitments
(518) On 9, 19, 24 and 29 October 2012 and further on 11 and finally 12 November
2012 H3G formally submitted Final Commitments which include, as the First
Commitments, a commitment to enter into an upfront agreement with one
MVNO which would have to be approved by the Commission. The commit-
ment to grant MVNOs access to H3G's network as already framed in the First
Commitments had been improved and adjusted in response to the concerns in
relation to the First Commitments. Finally and in addition, a commitment by
H3G to make available spectrum to a new entrant and related commitments
such as the sale or collocation of sites and national roaming for a period of up
to 6 years on the H3G Network on the basis of the same charges and substan-
tially the same terms as contained in the Reference Offer for the MVNO
wholesale access were included in the Final Commitments. The divestment
of spectrum to a new entrant is linked to the acquisition of additional spec-
trum which will be auctioned in Austria, as described in a resolution of the
Austrian Telecom Regulator Telekom-Control-Kommission (TKK) of 22 Oc-
tober 2012.
(519) The Final Commitments are set out in Annex III. All details of the terms up-
on which access is made available to MVNOs and national roaming on
H3G's network for an MNO will be published on the H3G website in the
form of a Reference Offer, also attached to the Final Commitments in Annex
III.
12.4.1. Commitment to enter into an Upfront MVNO Agreement
(520) H3G commits not to complete the acquisition of Orange Austria before enter-
ing into an MVNO agreement based on the Reference Offer with one
MVNO, subject to prior approval by the Commission (the "Upfront
MVNO"). In principle the provisions concerning the entry of this full MVNO
in the Austrian market for mobile communication services to end customers
as described in the First Commitments remain unchanged. As far as the con-
ditions of wholesale access to MVNOs were modified in the Final Commit-
ments, these provisions are applicable to the Upfront MVNO accordingly.
(521) UPC informed the Commission on 3 October 2012 that it had signed an
MVNO access agreement with H3G.
114
12.4.2. Commitment to make wholesale access available
(522) The main concept described in the First Commitments dealing with the ac-
cess rights given to MVNOs on H3G's network remained unchanged. The
amendments introduced
373
in the Final Commitments can be summarized as
follows.
(523) The wholesale access to up to 30% of H3Gs network for up to 16 MVNOs in
the coming 10 years is maintained, but further provisions have been intro-
duced, according to which this part of the commitment will also cease on the
date on which (i) H3G has transferred the Divestment Spectrum to a Pur-
chaser and (ii) the Auction Spectrum
374
has been transferred to the Pur-
chaser
375
with a MNO to sell its 2 x 10 MHz of contiguous spectrum in the
2.6 GHz frequency band ("Divestment Spectrum"), or, if earlier, the date on
which a new entrant MNO enters the market. In such circumstance H3G will
only remain committed to pre-existing MVNO Agreements, including the
right of those MVNOs to prolong their contracts.
(524) The framework of the general provisions in the Reference Offer remain un-
changed but the so-called Base Rates for data now apply equally to services
using UMTS, HSPA, HSDPA and LTE technologies, as well as GSM and
GPRS technologies if available under H3G 2G and 2.5 G roaming arrange-
ments.
(525) Furthermore, in reaction to the criticism revealed in the First Market Test
according to which the inclusion of penalty payments for not reaching short-
term forecasts were inappropriate and could undermine any pro-competitive
effect, the information requirements for forecasting have been amended to
limit information exchange between H3G and the competing MVNOs to a
level that, according to H3G, is the minimum necessary to preserve the le-
gitimate objective of H3G´s effective network planning. The incentive struc-
ture regarding forecasts is amended and payments due for not reaching
thresholds are further restricted. Any further information exchanges between
MVNOs and H3G are limited as set out in Part F of the Reference Offer.
12.4.3. Commitment to divest spectrum and additional rights
(526) H3G offers new structural commitments in the Final Commitments, making
available the Divestment Spectrum, 2 x 10 MHz of spectrum in the 2 600
MHz frequency band to a new entrant on the Austrian market. That spectrum
is to be divested alongside further spectrum in the 800 MHz frequency band
(the "Auction Spectrum") which will be reserved by the ("TKK") for one
new entrant in the context of the upcoming TKK Auction foreseen for 2013
373
Deficits of the First Commitments as far as MVNO access to H3Gs networks is concerned had
previously been addressed in a first amendment submitted by the Notifying Party on 9 October
2012. The future LTE technology and pricing were included, the penalty payments for not
reaching thresholds were eliminated and the transparency between MVNOs and H3G re-
stricted by reducing the MVNOs information obligations.
374
See Recital (526).
375
See paragraph 44 of the Commitments (Annex III).
115
(the "TKK Auction"). The Divestment Spectrum and Auction Spectrum will
only be sold to the same new entrant MNO (the "Purchaser"). If no new en-
trant acquires the Auction Spectrum and the Divestment Spectrum, there will
be no further obligation on H3G to divest spectrum and the Divestment Spec-
trum licence will remain with H3G. Existing MNOs of the Austrian market
or undertakings affiliated with them are excluded from this offer.
(527) H3G's sale of the Divestment Spectrum will be subject to a condition prece-
dent, according to which any acquirer of the Auction Spectrum will have the
right to acquire the Divestment Spectrum. If H3G has entered into a sale and
purchase agreement of the Divestment Spectrum before the TKK Auction
and the acquirer is not successful in the following TKK Auction, the success-
ful bidder for the Auction Spectrum will have the right to acquire the Di-
vestment Spectrum at the same price as previously agreed between H3G and
the first intended acquirer. If H3G does not enter into a sales agreement of
the Divestment Spectrum prior to the TKK Auction, the Divestment Spec-
trum is to be sold by H3G to the acquirer of the Auction Spectrum at a price
which should not be below zero. From the date at which the outcome of the
TKK Auction is definitive H3G will offer the Divestment Spectrum for sale
for a period of three months.
(528) H3G also commits to additional measures to enable the entry of the Pur-
chaser in the market for mobile telecommunications services to end custom-
ers in Austria. Specific provisions deal with the new entrant's conditions for
national roaming, preferred collocation rights and the possibility to purchase
sites.
(529) The national roaming on the H3G Network is foreseen on the basis of the
same charges and substantially the same terms as contained in the Reference
Offer in Annex 1 to the Commitments mutatis mutandis. The term of the na-
tional roaming agreement will be in principle for a period of up to six years
from the end of the Second Divestiture Period as defined in the Commit-
ments. H3G will have a right to terminate the national roaming agreement if
the Purchaser requests more than 30% of the capacity of the H3G Network.
H3G will offer mobility scenarios (hand over and reselection) and potential
radio network adoptions (for example, location area barring), based on the
principle that the Purchaser will bear any network implementation costs
which H3G may reasonably incur in order to accommodate such requests.
The detailed terms will be subject to good faith negotiation and agreement
between H3G and the Purchaser.
(530) Collocation on H3G´s existing sites, if technically feasible and subject to the
underlying terms of the relevant site leases will be granted to the Purchaser
on standard market terms. In addition, for a period of 6 years H3G will in-
form the Purchaser in a timely manner before new sites are installed in the
H3G Network in order to allow the Purchaser to make use of its preferred
rights to enter into a collocation agreement for such space where a third party
also made a collocation request during a protected period of two weeks.
(531) Additionally H3G commits to offer to divest to the Purchaser on commercial
terms any sites which, following the acquisition of Orange, are not required
by H3G for the H3G Network and which have not been separately sold to
116
third parties. For a period of two years H3G will provide the Purchaser on a
monthly basis with a list of sites for which H3G intends to terminate the site
lease contracts provided that H3G will not be required to offer or divest any
sites to the Purchaser after 31 August 2015; and upon the issue of each such
list, the Purchaser will have a period of 1 month to make a binding selection
of the sites on that monthly list which it will purchase. The maximum pur-
chase price will be the book value in addition to operation cost and the cost
that H3G would have had if the contract was terminated. Nevertheless H3G
will be allowed to terminate site contracts before the date of the TKK Auc-
tion as part of its network consolidation project, provided that there are 2000
sites for potential divestment at the date of the TKK Auction as at 1 Septem-
ber 2013.
12.4.4. The Resolution of the Austrian Telecom Regulator Telekom-Control-
Kommission (TKK) of 22 October 2012 ("Beschluss")
(532) On 22 October 2012 the TKK adopted a resolution which constitutes a nec-
essary and integral part of H3G's commitment as far as the divestment of
spectrum to a new MNO entrant is concerned. The Beschluss provides for a
strengthening of the new MNO by adding available spectrum, reserved by
the TKK, to the interested entrant.
(533) If the Commission clears the acquisition of Orange Austria by H3G subject
to the divestiture of at least 2 x 10 MHz of the 2.6 GHz spectrum to a new
entrant MNO, the TKK is prepared (subject to the approval by the relevant
Federal Ministry for Transport, Innovation and Technology (BMVIT) to re-
serve spectrum in the 800 MHz spectrum band for a potential new entrant
MNO in the framework of the upcoming Spectrum Auction of 2013 (the
"Auction Spectrum").
(534) The reservation of the 800 MHz spectrum is conditional on the acquisition by
a third party MNO of at least 2x10 MHz on the 2.6 GHz band Divestment
Spectrum from H3G. The third party MNO needs to fulfil the Auction Spec-
trum participation criteria as defined by the TKK, it must actively participate
in the auction but must not be currently active in Austria. The TKK further
defines the conditions of the offer of the Auction Spectrum, stating that H3G
must divest a number of sites, and must offer collocation rights and national
roaming services to the new entrant MNO for a period of six years with the
terms and conditions of H3G's MVNO commitment offer.
(535) The TKK will also impose on the new entrant MNO population coverage
obligations for all acquired frequency bands, which will be comparable to the
current coverage obligations in the long term.
(536) In case no new MNO enters the Austrian market, the TKK undertakes to en-
sure that the Divestment Spectrum of the 2.6 GHz range remains with H3G,
as TKK will not require the spectrum licence for the Divestment Spectrum to
be returned to the TKK.
(537) The details and conditions describing the resolution are explained in the Bes-
chluss in Annex IV.
117
12.5. Assessment of the Final Commitments
(538) The First Commitments were revised and improved substantially by H3G
and consolidated in the Final Commitments. The Commission's conclusion,
based on the results of the Second Market Test and further assessments is
that the Final Commitments are appropriate to eliminate the non-coordinated
effects identified and, moreover, the possible coordinated effects.
376
There-
fore the Proposed Transaction, in conjunction with the Final Commitments
proposed by H3G, will not significantly impede effective competition in
Austria, constituting a substantial part of the internal market.
(539) The competition concern results from the elimination of a viable competitor
on the Austrian mobile telecommunication market for end customers, which
is a market with high barriers to entry for competing MNOs and MVNOs.
The Final Commitments address those concerns by lowering the barriers to
entry for both groups of potential competitors, MNOs and MVNOs.
(540) The Final Commitments give the opportunity for a new MNO to emerge. A
clear majority in the Second Market Test considered that the combined fre-
quencies package of Divestment Spectrum and Auction Spectrum was suffi-
ciently attractive for an MNO to enter the market. Two thirds of respondents
believed that it enables the new MNO entrant to compete with the current
MNOs on equal terms in future technologies (such as LTE). H3G's proposed
national roaming offer also obtained strong support. Furthermore, a large ma-
jority of the respondents found the capacity threshold of 30% of H3G's net-
work capacity, the collocation conditions and purchase rights for sites and
masts appropriate.
(541) The Commission takes the view that a company ready to develop and invest
in an own network structure represents a long-lasting and sustainable com-
petitive force. In such a case it is acceptable that the MVNO access commit-
ment will cease to be available for further MVNOs and will continue to be
effective solely for those which had previously entered into agreements with
H3G.
(542) In such a scenario one new MVNO (the Upfront MVNO) and potentially
additional MVNOs or an MNO will have entered the relevant Austrian mar-
ket and would be likely to exert sufficient competitive constraints on the
three remaining incumbent players.
(543) Even though the entry of an MNO would have a very strong and desirable
competitive effect, addressing the competitive concerns, the Commission is
aware that there is no guarantee that a MNO will effectively enter the market.
Even though the package of Divestment- and Auction Spectrum is attractive
to start the MNO business on the Austrian mobile telecommunications mar-
ket, such a decision would involve further serious investments and a long
term commitment in Austria. In any event, the Commitments enable an MNO
376
See Section 8.
118
entrant to come to the Austrian market, a considerable lowering of barriers to
entry which is further supplemented by the MVNO access agreement.
(544) The Final Commitments guarantee that the barriers to entry are also lowered
for MVNOs. Up to 16 alternative players will be able to enter the Austrian
market for the next 10 years on attractive terms as confirmed by the Second
Market Test. One new Upfront MVNO will enter the market before the Pro-
posed Transaction is implemented. On the basis of the First Market Test and
the Second Market Test and information provided by the Notifying Party, the
Commission considers it likely that more MVNOs will enter the Austrian
market for mobile telecommunication services for end customers. The
MVNOs will have the possibility to transfer into an MNO over time as long
as the MVNO does not hold spectrum which exceeds outdoor coverage of
10% of the population.
(545) On the basis of all the information available, including that received from
potential MVNO entrants, the Commission considers it likely that MVNOs
will offer at least to a certain extent post-paid tariffs. Furthermore, the
MVNO access agreement is sufficiently advantageous to allow for offering
tariffs which target the data segments.
(546) As far as the proposed improvements to the commitment relating to whole-
sale access are concerned, the results of Second Market Test overall demon-
strate that the Final Commitments are effectively and sufficiently improved
The revised forecasting mechanism of the MVNO access commitment was
approved by a large majority of respondents, who also considered that the
MVNO's rights were sufficiently protected. Likewise it was said that the new
LTE pricing mechanism was sufficient to enable MVNOs to compete in the
future.
(547) Overall a majority of more than two thirds thought that the MVNO access
remedy was appropriate to attract the interest of MVNOs and the foreseen
fast track dispute resolution mechanism was sufficiently effective and timely.
(548) Generally MNOs and MVNOs were in favour of the commitments package
proposed by the Notifying Party with the exception of Tele2 and Deutsche
Telekom (T-Mobile's parent company) which took critical stances. Deutsche
Telekom argued that the Austrian market would be better served if the reme-
dies attributed spectrum to existing MNOs, such as T-Mobile, which does not
have enough spectrum to compete on a level playing field with the other
Austrian MNOs.
(549) In the Commission's view the criticism of Tele 2 is sufficiently covered by
the fact that MVNOs are eligible for the wholesale access remedy proposed
by H3G, even when holding spectrum frequency licences with outdoor cov-
erage not exceeding 5%. If, during the contractual relationship between the
MVNO and H3G, the population coverage exceeds 10%, H3G will have a
right to terminate the MVNO agreement. These thresholds take into consid-
eration possible developments of MVNOs.
(550) As far as Deutsche Telekom's submission is concerned, the Commission be-
lieves that the competition concerns are sufficiently and adequately resolved
by attracting new entrants to the highly concentrated market of three remain-
119
ing MNOs on the Austrian mobile telecommunication market, rather than by
strengthening one of the incumbents, the number two on the relevant market.
It should be emphasized that the competition concerns identified by the
Commission are based on the elimination of a competitive force on the mar-
ket and not an excessive spectrum in the hands of H3G after the merger.
(551) The Austrian competition authorities (BWB and Federal Cartel Prosecutor)
remained critical of the remedies in the Second Market Test and considered
that market entry by a new MNO was rather unlikely and it was not clear to
what extent possible co-ordinated effects were eliminated. The Final Com-
mitments lower barriers to entry for both MNOs and MVNOs and post-
merger at least one new MVNO (the Upfront MVNO), and probably more,
will be active on the Austrian mobile telecommunication market for end cus-
tomers. The Commission therefore takes the view that the entry of MVNOs
and possibly an MNO will guard against any possible coordinated effects.
(552) The Austrian Telecoms regulator (RTR and TKK) supported the Final Com-
mitments package with the exception of certain provisions. The regulator
admits that the Final Commitments substantially decrease barriers to entry
for possible entrants that could compensate for the elimination of Orange.
The regulator also explicitly welcomed the commitment to provide wholesale
access for MVNOs because it would create an even lower entry barrier.
MVNO entry should, in principle, be suitable to increase competition further
– or if no new MNO should enter – to invigorate competition. RTR and TKK
generally considered that the package of structural and other commitments
suffice to compensate for the exit of Orange from the Austrian market.
(553) In the light of all the preceding considerations the Commission concludes
that, subject to full compliance with the commitments given by H3G, the
Proposed Transaction will not significantly impede effective competition in
the internal market or a substantial part thereof. The merger should therefore
be declared compatible with the internal market and the EEA Agreement
pursuant to Article 2 (2) and Article 8 (2) of the Merger Regulation and Arti-
cle 57 of the EEA Agreement, subject to full compliance with the commit-
ments contained in Annex III.
13. CONDITIONS
AND OBLIGATIONS
(554) The fulfilment of the measures that give rise to the entry of MVNOs and en-
able the entry of an MNO in the Austrian market is a condition, whereas the
implementing steps which are necessary to achieve that result are generally
obligations on the Notifying Party, H3G. Where a condition is not fulfilled,
the Commission’s decision declaring the concentration compatible with the
internal market is no longer applicable. Where the undertakings concerned
commit a breach of an obligation, the Commission may revoke the clearance
decision in accordance with Article 8(6) of the Merger Regulation. The un-
dertakings concerned may also be subject to fines and periodic penalty pay-
ments under Article 14(2) and Article 15(1) of the Merger Regulation.
(555) In accordance with the basic distinction described in recital (554) as regards
conditions and obligations, this Decision should be made conditional on full
120
compliance by the Notifying Party with Sections B, C and D (excluding
"Annex 1" and "Appendix A" to the Commitments) of the Final Commit-
ments submitted by the Notifying Party on 12 November 2012. All other
Sections of the Commitments (including "Annex 1" and "Appendix A" to the
Commitments) should be obligations within the meaning of Article 8(2) of
the Merger Regulation. The full text of the commitments is attached as An-
nex III to this Decision,
121
HAS ADOPTED THIS DECISION:
Article 1
The notified operation whereby Hutchison 3G Austria Holdings GmbH acquires sole
control of Styrol Holding 1 GmbH and its indirect wholly owned subsidiary Orange
Austria Telecommunications GmbH (excluding Yesss! Telekommunikation GmbH)
within the meaning of Article 3(1)(b) of Regulation (EC) No 139/2004 is hereby de-
clared compatible with the internal market and the EEA Agreement.
Article 2
Article 1 is subject to compliance with the conditions set out in Sections B, C and D of
Annex III.
Article 3
Hutchison 3G Austria Holdings GmbH shall comply with the obligations set out in
sections A, E, F and G of Annex III (including "Annex 1" and "Appendix A" to the
Commitments).
Article 4
This Decision is addressed to:
Hutchison 3G Austria Holdings GmbH
Gasometer C
Guglgasse 12/10/3
1110 Vienna
Austria
Done at Strasbourg, 12.12.2012
For the Commission
(signed)
Joaquin ALMUNIA
Vice-President
122
ANNEX I – COMPARISON OF ESTIMATED DIVERSION RATIOS BE-
TWEEN THE PARTIES IN PRIVATE POSTPAID VOICE & DATA BUN-
DLES
1. MOBILE NUMBER PORTABILITY ESTIMATES
(1) Although the Notifying Party argues that little weight should be given to the
Mobile Number Portability ("MNP") database (as provided with the notifica-
tion), there seems to be no reason to expect it to be a poor or biased estimator
of switching in the post-paid segment. MNP data is used by the MNOs in
their business decisions, along with internal surveys (further discussed be-
low).
377
Moreover, since it is a large sample (about 10% of total switchers
according to H3G), it should reliably estimate the population statistics. By
contrast, the Notifying Party may be correct in surmising that it is of less val-
ue in the pre-paid segment and of very little value in the data-only segment,
where the subscriber number is unimportant
378
. For these reasons, the Com-
mission makes use of the data only in relation to the post-paid retail segment.
(2) The Commission further notes that the MNP data roughly corresponds to the
position accepted by the merging parties, namely that each mobile operator
gains new business from the others in a ratio of approximately one-third each
(3) The following table shows the implied diversion ratios between each of the
operators using the MNP data.
Table 1: Diversion ratios computed from total port-outs (2009 - 2011), MNP data
Date Company Loss to
H3G
Loss to
TA
Loss to
Orange
Loss to
T-
Mobile
Loss
to
Yesss!
Total
2009 H3G [20-
30]*%
[40-50]*% [30-
40]*%
[0-
5]*%
100.00%
2010 H3G [30-
40]*%
[30-40]*% [30-
40]*%
[0-
5]*%
100.00%
2011 H3G [30-
40]*%
[20-30]*% [30-
40]*%
[0-
5]*%
100.00%
2012q1 H3G [20-
30]*%
[30-40]*% [30-
40]*%
[0-
5]*%
100.00%
2009 TA [20-
30]*%
[30-40]*% [40-
50]*%
[0-
5]*%
100.00%
377
H3G's response to Commission RFI of 15 May 2002, File 29.M6497_RFI 15.05.12_Annex
2.3.2 (1011_Insights) (Confidential).ppt.
378
Form CO, paragraph 207
123
2010 TA [20-
30]*%
[20-30]*% [40-
50]*%
[0-
5]*%
100.00%
2011 TA [30-
40]*%
[20-30]*% [40-
50]*%
[0-
5]*%
100.00%
2012q1 TA [30-
40]*%
[30-40]*% [20-
30]*%
[0-
5]*%
100.00%
2009 Orange [20-
30]*%
[30-
40]*%
[40-
50]*%
[0-
5]*%
100.00%
2010 Orange [20-
30]*%
[30-
40]*%
[30-
40]*%
[0-
5]*%
100.00%
2011 Orange [30-
40]*%
[30-
40]*%
[30-
40]*%
[0-
5]*%
100.00%
2012q1 Orange [30-
40]*%
[30-
40]*%
[20-
30]*%
[0-
5]*%
100.00%
2009 T-Mobile [20-
30]*%
[30-
40]*%
[30-40]*% [0-
5]*%
100.00%
2010 T-Mobile [30-
40]*%
[30-
40]*%
[30-40]*% [0-
5]*%
100.00%
2011 T-Mobile [30-
40]*%
[40-
50]*%
[20-30]*% [0-
5]*%
100.00%
2012q1 T-Mobile [20-
30]*%
[40-
50]*%
[20-30]*% [0-
5]*%
100.00%
Source: Form CO, Annex 6.8, MNP database
2. EVIDENCE PROVIDED BY SURVEYS
In principle, diversion ratios could also be estimated from the survey data
collected by the Parties and included with the Form CO
379
. However, such
sources offer a number of drawbacks which make them clearly inferior to use
of the MNP data, even if the estimates they provide are broadly comparable.
The use which can be made of this data is therefore only qualitative.
(4) In the Form CO, the Notifying Party argues that "on the whole, the Survey
diversion ratios [DRs] suggest less competitive interaction between H3G and
Orange than the MNP DRs. While the Survey DRs generated on the basis of
these studies fall within a considerable range, a clear majority of them are
materially smaller than the corresponding MNP DR. In only a small propor-
379
Annex 6.10 to the Form CO "Review of internal studies on churn and switching".
124
tion of cases the Survey DR is materially larger. This confirms that MNP
DRs [0-5]*% overstate the interaction between Orange and H3G."
380
(5) The Notifying Party has offered no explanation of why, in its view, the MNP
diversion ratios should overstate the interaction between the merging parties
or why the survey results, notwithstanding their much smaller sample size
and methodological limitations, should be considered more accurate. In the
Commission's view, the relevant survey results are limited in number and are,
indeed, within their margin of error, compatible with the figures derived from
the MNP. Given that the latter is a much larger, unbiased sample for the post-
paid segment and that it also correctly accounts for the time of switching, it is
clearly the preferable estimate of the applicable diversion ratios.
(6) Firstly it should be noted that the correct measure of the diversion ratio from
A to B is the proportion of customers of A which would switch to B in the
event of a price increase (or equivalent hedonic change). The proportion of
new customers of B which come from A, which is the number most often es-
timated in the surveys, is a different figure and not directly relevant for this
purpose.
(7) Secondly, diversion ratios are measured at a moment in time. The MNP data
does this, but a number of surveys take as a basis the last switching event of a
consumer, irrespective of when it took place. This generates a downward bias
in the estimate of switching away from H3G and/or a wider confidence mar-
gin on this estimate due to the fact that the MNP database shows that in abso-
lute terms switching from H3G was lower in the earlier periods because it
had a lower market share. In other words, if all customers of a given operator
are considered, it is more difficult to find those whose previous operator was
H3G than if one considered only new customers of the same operator. Even
if one restricts attention to the subsample of customers who switched from
H3G, this subsample is very small and since it contains customers who
switched over a long period it will also fail to pick up any switching
trends
381
.
(8) Although there is a trade-off between accuracy and recentness, the diversion
ratio to be considered for the UPP analysis should be the most recent one
available as, on the assumption that it is unbiased by seasonality, it will be
the figure which best estimates incentives and behaviour post-merger.
(9) It also needs to be emphasized that the available surveys provide far less ob-
servations than the MNP database. The total MNP database considered con-
tains 634756 observations, compared to only 2000 in the most recent study
commissioned by A1
382
. This study includes only 200 observations on
380
Form CO, paragraph 250.
381
This latter consideration may be less relevant for switching from H3G to Orange as the MNP
data shows no overall trend in this direction over the 13 quarters considered, though the most
recent quarterly data in the MNP database might indicate that the more recent trend is for this
value to increase.
382
Annex 6.9.1 to the Form CO "Neukundenanalyse Februar 2012".
125
switching from each of H3G and Orange
383
. It also includes information on
internal switching and the choice of operator of persons opting for an opera-
tor for a second handset. There are accordingly only very few observations
on switching between Orange and H3G, as a result of which the confidence
interval on the estimates is large. Of surveys carried out between 2010 and
2012, this survey also gives results which appear to be outliers.
(10) In these more recent surveys, there are in fact only five estimates of the rate
of switching from Orange to H3G, and only one of the rate of switching from
H3G to Orange. Three surveys carried out by Orange at the end of 2010 es-
timate the proportion of their customers who have switched or intend to
switch to H3G. The first of these estimates a switching ratio of between [30-
40]*% and [30-40]*%, the second [20-30]*%, and the third [30-40]*%, all
similar to the estimate from the MNP data. A survey from January 2010 pro-
vides an outlying estimate of [10-20]*%.
(11) These surveys do not indicate whether the respondents were recent leavers or
include also persons having left since some time. It is also not certain wheth-
er or not they include Yesss!. According to the MNP data, switching from
Orange to H3G has been increasing on average by [0-5]*% per quarter (in
the opposite direction there is no discernible trend), as a result of which in-
corporation of older switchers in the survey would result in a measure which
is biased downwards because there are fewer old switchers than current
switchers. In any case, extrapolating these figures to 2011 would require an
increase of +1.2% using the MNP trend and extrapolating them to 1Q2012
would require increasing them by five quarters i.e. +3%.
(12) In conclusion, these numbers are therefore comparable to the figures of [30-
40]*% for 2011 and [30-40]*% for 1Q2012 observed in the MNP data.
(13) The only survey which estimates switching from H3G to Orange is the
aforementioned study from early 2012 by A1, which gives a figure of [20-
30]*%. This is based on about 100 observations and has a 95% confidence
margin of +/- 8%. It also does not estimate recent switching but all switching.
It is therefore compatible with the 2011 MNP estimate of [20-30]*%, and if
it falls short of the 1Q12 estimate of [30-40]*% this is unsurprising as it
would not have picked up any recent trend. There therefore seems no reason
to prefer this estimate to the estimate provided by the MNP data.
(14) The remaining surveys estimate arrival rates. Arrival rates can be used to
estimate diversion ratios, but require a correction factor to be applied which
cannot be directly estimated from the surveys themselves.
(15) In order to do this, let n
ij
be the number of switchers from i to j at time t, and
define N
i
as the number of switchers away from i. Then N
i
is the sum of n
ij
for all values of j, i.e. ∑
j
n
ij.
Further define N'
j
as the number of switchers to j.
Then N'
j
= ∑
i
n
ij
383
The study includes disproportionate observations on switching to A1's brands, which is logical
given the purpose for which it was commissioned: these represent 55% of the dataset (60% in-
cluding Yesss!).
126
(16)
Define s
ij
as the proportion of all switchers from i which go to j and s'
ij
as the
proportion of all switchers to j which come from i. Then s
ij
= n
ij
/ N
i
and s'
ij
=
n
ij
/ N'
j
(17) It follows that s
ij
/ s'
ij
= N'
j
/N
i
, i.e. s
ij
= (N'
j
/N
i
) s'
ij.
Accordingly the diversion
ratio from A to B is equal to the arrival ratio to B from A multiplied by the
ratio between the total number of subscribers arriving at B and the total num-
ber leaving A. This reflects the intuition that if many users in the market are
switching to B, whereas few are switching from A, the proportion of users of
A in the total who switch to B will be low, notwithstanding that, of those few
users who switch from A, many might switch to B.
(18) In general, we know that many more users in the market switch to Hutchison
than to Orange, and many more switch from Orange than from Hutchison.
On the complete MNP data, switching from H3G is [0-5] times switching to
Orange, whereas switching from Orange is 0.8 times switching to H3G.
(19) It follows that, using the MNP data, the proportion of switchers to H3G
which come from Orange would be likely to underestimate the diversion ra-
tio from Orange to H3G by a factor of 3.3, whilst the proportion of switchers
to Orange which come from H3G would also be likely to underestimate the
diversion ratio from H3G to Orange, but by a lesser amount, i.e. 1.25. Both
values underestimate the respective diversion ratios because both H3G and
Orange receive proportionately many more switchers than the market aver-
age. Unlike H3G, however, Orange also loses proportionately many more
customers.
(20) In the following table, based on the one provided by the Notifying Party at
Annex 6.10 to the Form CO, the values which directly estimate the diversion
ratio (subject to the other methodological weaknesses discussed above) are
those in the first and fourth columns. The value in the second column has
been multiplied by 1.25 and in the third column by 3.3. It can be seen that
applying this correction immediately results in values much closer to the
MNP values and indeed frequently exceeding them (the colour coding is the
one originally used by the Notifying Party).
127
Table 2: Diversion Ratio
Switching from
Orange
(MNP 2011:
31%)
Switching
from H3G
(MNP 2011:
27%)
Document Period cov-
ered
leaving Adj.
arriv-
ing
Adj.
arr.
leaving
TA Neukundenanalyse
2012_VORABERGEBNI
SSE.ppt
Janu-
ary/February
2012
[10-
20]*%
[10-
20]*%
[30-
40]*
%
[20-
30]*%
H3G Hauptstudie Voi-
ce_2011_Bericht.ppt
2011 - [20-
30]*%
- -
H3G Kundenbewegun-
gen_VOICE und DA-
TA.ppt (voice)
November
2011
- [40-
50]*%
[30-
40]*
%
-
H3G Hauptstudie Voi-
ce_2011_Bericht.ppt
2010 - [20-
30]*%
- -
TA Neukundenanalyse
2011_April2011_bm_final
.pdf (external churners)
Christmas
2010
- [20-
30]*%
[40-
50]*
%
-
OA Churn Study
2010_Used Network Pro-
vider.ppt
Novem-
ber/December
2010
[30-
40]*%
- - -
OA Orange New Custom-
ers Study, Wave 2 - 25
November 2010 till 6 De-
cember 2010.ppt
Novem-
ber/December
2010
- - [50-
60]*
%
-
OA Orange Churn Study,
Wave 2 - 25 November
2010 till 6 December
2010.ppt
Novem-
ber/December
2010
[20-
30]*%
- - -
OA Orange New Custom-
ers Study, Wave 1 - 28
October 2010 till 5 No-
vember 2010.ppt
Octo-
ber/November
2010
- -
[30-
40]*
%
-
OA Orange Churn Study,
Wave 1 - 28 October 2010
till 5 November 2010.ppt
Octo-
ber/November
2010
[30-
40]*%
- - -
OA Orange Blitz – Befra-
gung ehemaliger Orange
Kunden, January 2010
(survey of former Orange
customers).ppt
January 2010
[10-
20]*%
- - -
128
(21) It follows that both the surveys and the MNP data show levels of switching
which are consistent with estimates of the parties' shares of new business, but
not of their existing share of subscribers. For reasons of simplicity, because it
would appear to provide a less biased and more accurate estimate, and be-
cause the surveys do not paint a consistent or significantly different picture
and do not provide a reliable alternative estimate of the diversion ratios, the
UPP analysis has been carried out using the MNP data only.
ANNEX II – ROBUSTNESS CHECKS ON THE PREDICTED PRICE IN-
CREASES AS A RESULT OF THE MERGER
1. THE PREDICTED PRICE INCREASES ARE ROBUST TO ALTER-
NATIVE ASSUMPTIONS AS TO THE RELEVANT MARGINS TO
CONSIDER
(1) As set out in the main body of the text, the Commission has used for its cal-
culations on predicted price increases the same contribution margins which,
according to internal documents, the Parties use for their own pricing deci-
sions.
384
(2) In the reply to the SO, H3G argues that the marginal costs used by the Com-
mission in its calculations are only those which are "both (i) directly attribut-
able to individual tariffs and (ii) variable in the very short term, namely in-
terconnection fees and customer acquisition costs", which "do not include an
important cost associated with winning additional subscribers, [namely] the
cost of expanding capacity to supply them with calls and data".
385
(3) As a preliminary comment, if this claim were correct, one would expect such
costs to figure in pricing decisions and in internal management accounting.
This, however, does not appear to be the case.
1.1. Incorporation of the claimed variable components of capital expenditure
does not have a material effect on the result
(4) Although it is not referenced in the reply to the SO, the argument concerning
margins was developed further in the submission of the Parties' economic
advisors in response to the 6(1)(c) decision.
386
(5) In that submission it was claimed, although without supplying evidence, that
certain costs which are accounted for as capital expenditure (CAPEX) and
not reflected in the contribution margin used for the UPP calculation by the
Commission are in fact variable and are "an important proportion of the
costs that drive pricing incentives". The Notifying Party further claims that
such costs are "a large proportion of CAPEX", although this proportion is not
quantified, but merely qualified by the statement that "in our understanding
384
See for instance H3G's reply to the Commission's RFI of 11 May 2012, Annexes 2.5 (pp. 12 &
13) and 2.12 (pp. 12 & 18).
385
Reply to the SO, para. 242.
386
Submission of 10 September 2012 on unilateral effects, para. 4.18-4.34.
129
[i.e. that of the economic advisors], a substantial proportion of an operator's
CAPEX is variable in the short-to-medium term".
387
(6) Notwithstanding this claim, in response to the SO the Parties make no at-
tempt themselves to recalculate the expected price increases using what they
would consider to be the correct costs.
(7) The claim that a part of capital expenditure should be considered variable has
not been sufficiently substantiated by the Notifying Party, nor has the part in
question been adequately identified. Nonetheless, even taking the Notifying
Party's claims at face value, they would not significantly affect the conclu-
sions, since even if one were to look at all network-related CAPEX in the ac-
counts of H3G, of which presumably the parties accept that a part is not vari-
able in the short to medium term, it amounted for 2011 only to EUR 44.9
million compared to OPEX (which are treated below) of EUR [300-400]*
million.
388
(8) In addition to this, it should be borne in mind that, as mentioned at paragraph
155 of the Decision, the vast majority of traffic on H3G's network is data
traffic (around [90-100]*%)
389
of which the vast majority (about [80-90]*%
of the total) is in turn data traffic over data-only devices.
390
On the Orange
network, approximately [70-80]*% of data traffic originates from mobile
broadband plans,
391
and total data traffic represents just under [90-100]*% of
the total.
392
Hence, even if the Parties were right in arguing that a part of
CAPEX should be considered variable, this part is of limited relevance to the
post-paid segment.
(9) In the interests of robustness, the Commission has nonetheless recalculated
the expected price increases attributing the maximum plausible amount of the
claimed variable CAPEX, in reduction of post-paid margins across private
and business clients.
(10) Given that in terms of network utilization it basically does not matter wheth-
er (data) traffic is generated by data-only or by voice enabled devices, it fol-
387
Para 4.25 of the paper on unilateral effects (emphasis added).
388
Depreciation and amortization of CAPEX amounted to [0-100 million]*
389
See Table 38 of Form CO. This presumably includes all data traffic, while only downloaded
data should be considered as reasoned in footnote
390
On the basis of Annex 3.1 to the RFI of 4 April 2012, H3G in December 2011 realized [2,000-
3,000]* million MB of data load on data-only tariffs as compared to only [0-1,000]* million
MB on voice-enabled tariffs.
391
On the basis of Orange's reply to the RFI of 4 April 2012, in 2011 it realized [3,000-4,000]*
million MB on mobile broadband tariffs; according to Annex 5a of its reply to the RFI of 8
May 2012, it realized a total of [4,000-5,000]* million MB in the same year.
392
In 2011, Orange realized [1,000-2,000]* million incoming minutes of voice calls, which ac-
cording to para. 510 of the Form CO translate to network load at a ratio of [0-100]* mins/MB.
Outgoing traffic is assumed not to lead to a binding constraint given that it is carried over a
separate frequency channel and much more data is downloaded than uploaded. The proportion
of the incoming network load constituted by voice calls may be slightly higher given that
some of the data traffic represents upload traffic. Even if download and upload data traffic is
considered, Orange's proportion of data traffic is roughly [70-80]*% according to Table 38 of
Form CO.
130
lows that the imputed marginal costs from CAPEX for each MB must be the
same for data-only or other post-paid contracts. Since the traffic generated by
an average post-paid customer is much less than that of a data-only sub-
scriber, the marginal costs from expenditures needed to relieve congestion at
specific sites per post-paid subscriber is relatively low.
393
(11) The Notifying Party argues that the costs per subscriber are decreasing in the
size of the MNOs, which would imply that the marginal costs of an addi-
tional subscriber are below the average variable costs.
394
For its robustness
tests, the Commission has nevertheless assumed that variable costs per cus-
tomers are constant.
(12) Therefore for H3G at most [20-30]*% of such allegedly variable CAPEX
could be considered relevant to the GUPPI calculation for the postpaid voice-
enabled segment, whereas for Orange it is at most [40-50]*%.
395
(13) This calculation scarcely differs from the one set out in the main text. Using
this approach, the margin of H3G for the twelve months April 2010-March
2011 would be reduced from EUR [5-10]* to EUR [5-10]* per month per
postpaid customer.
396
For Orange it passes from EUR [10-20]* to EUR [10-
20]*.
397
As a result, the predicted price increase for H3G would be reduced
from [10-20]*% to [10-20]% and for Orange from [10-20]*% to [10-20]*%.
1.2. Claimed variable operational expenditure not included in contribution
margins
(14) At paragraph 245 of the response to the SO, H3G also argues that some op-
erational expenditure (OPEX) which is not incorporated into the quoted con-
tribution margins should similarly be viewed as variable. Although this ar-
gument was not elaborated upon in the reply to the 6(1)(c) decision, in
Annex 10.1 of the reply to the Commission's RFI of 8/5/12, various
categories of fixed costs were presented which H3G argued were partly
variable. In this submission, a certain percentage of costs was proposed to be
considered as variable based on an internal exercise in which the Notifying
Party had attempted to estimate the irreducible part of these costs.
393
It is also to be noted that the claim at para. 4.27 of the submission on unilateral effects and at
para. 243 of the response to the SO, according to which the Parties can and do upgrade the
network constantly based on dynamic monitoring (and therefore that part of the CAPEX could
be considered as variable) seems, as already discussed in the main body of the decision, to
contradict the simultaneous claim made elsewhere of an imminent binding capacity constraint
on H3G. The onsale of Yesss will also leave Orange with additional implemented capacity in
the short term.
394
See H3G Reply to the SO, para. 311 et seq.
395
The relevant traffic proportion for post-paid is at most the voice/SMS traffic plus the data
traffic not generated by data only plans. For H3G, this is roughly […] = [10-20]*% and for
Orange this amounts to […] = [30-40]*% on the basis of downlink traffic and […] = [40-
50]*% on the basis of total traffic.
396
Source: Calculations based on annex 10.2 to the reply of H3G to the Commission's RFI of 8
May 2012. Note that H3G provides a blended margin for private and business postpaid cus-
tomers.
397
Source: Calculations based on annex 10a to the reply of Orange to the Commission's RFI of 8
May 2012. Quoted margins exclude business customers.
131
(15) In response to this claim, it should first be noted that if these costs are only
partly variable as H3G argues, it is methodologically incorrect simply to
identify a proportion of costs which may be considered variable, since this
proportion is a function of the period over which it has been calculated.
398
As
it is not clear how the Parties have proceeded, it is not possible on the basis
of their estimates to separate the components which are agreed to be fixed
from those that are claimed to be variable. The Commission can therefore not
be confident that application of this percentage to the costs observed over the
period for which it conducts its analysis leads in fact to a correct result.
Moreover, insofar as the estimate compounds information from earlier peri-
ods in which the customer base was smaller and therefore fixed costs greater
as a proportion of the total, carrying out the calculations using this same per-
centage must necessarily result in an underestimate of the predicted price in-
crease.
(16) The Commission has nevertheless proceeded in this way purely as a robust-
ness check.
(17) In order to assign the claimed variable proportion of OPEX correctly to the
postpaid private voice-enabled segment rather than the other segments, the
Commission has grouped them into three categories, with the cost driver as-
sumed to be either (a) network traffic (b) subscriber numbers or (c) zero for a
category of costs presumptively only applying to data (such as content
costs).
399
Based on the same reasoning as set out above for CAPEX, the costs
categorized in this way were charged respectively for 20%, 65% and 0% in
reduction of H3G's postpaid voice-enabled margin. These allocation keys are
justified by the fact that slightly less than [20-30]*% of the total data traffic
is generated by voice subscribers (almost all post-paid), but voice subscribers
amount to [60-70]*% of H3G's total subscribers.
400
On a conservative basis
the entire latter proportion is assigned to the post-paid margin in view of the
fact that billing and marketing costs are likely to be lower for pre-paid.
(18) For Orange, a proposal relating to the attribution of OPEX costs not consid-
ered in contribution margins was absent. The Commission therefore tried to
map the fixed cost categories of Orange to those of H3G and assumed they
were variable in the same degree. In doing so, it endeavoured once again to
proceed on a conservative basis. As regards the attribution key, costs driven
by network use were assigned at 40% and those driven by subscriber num-
bers were assigned at 90% to the post-paid segment.
401
398
As the fixed costs are by definition invariate over time, they contribute a varying and not fixed
percentage of the total in any given period.
399
Certain costs such as network transmission charges are taken to be driven by network load
whereas others such as marketing and IT are taken rather to be driven by subscriber numbers.
400
On the basis of Annex 3.1 to the RFI of 4 April 2012, H3G in December 2011 had [500,000-
600,000] data-only subscribers and [800,000-900,000] voice subscribers; these figures are
similar to those furnished in Annex 6.3 to the Form CO.
401
For the number of data-only subscribers we have taken the more conservative figure based on
the reply to the RFI of 4 April 2012, i.e. in Dec 2011 approximately [100,000-200,000] data-
132
(19) The additional OPEX adjustment makes a much more substantial impact than
the CAPEX one. Nonetheless the predicted price increases remain signifi-
cant.
(20) The result of the additional OPEX adjustment is that the contribution margin
of H3G for the period April 2011-March 2012 would be further reduced
(over and above the allocation of the claimed variable CAPEX) by EUR [0-
5] for 2011 to EUR [0-5], whereas for Orange it would be reduced by EUR
[0-5] to EUR [10-20].
(21) The impact of this on the predicted price increase would be to reduce it fur-
ther to [5-10]*% for H3G customers and [5-10]*% for Orange customers.
2. THE PREDICTED PRICE INCREASES ARE ROBUST TO ANTICI-
PATED TRENDS IN REVENUES AND MARGINS
(22) It is also interesting to note that Orange's average contribution margins,
which are high, have, as shown in the graph below, remained rather constant
over the 15 months Jan 11-Mar 12 (a linear regression on the data points
shows an average increase of EUR [0-5] per month), whereas those of H3G
have been increasing steadily (except for Dec 11 due to Christmas promo-
tions) at an average of EUR [0-5] per month. This trend would suggest that if
anything the pricing effect will be greater going forward since increased
margins give an increased incentive to price higher.
402
Figure 1: Average contribution margins per post-paid private voice-enabled customer
only subscribers out of a total of [1,400,000-1,500,000], i.e. data-only subscribers as [10-20]%
of the total.
402
This can be seen by differentiating equation 11 in the Hausman et al. paper.
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
133
(23) The improvements in margins are, however, driven entirely by reductions in
costs rather than increases in revenues. As shown in the graph below, the
average per-user revenue of H3G has remained relatively constant over the
fifteen months Jan 2011-Mar 2012, whilst that of Orange has declined
somewhat.
Figure 2: Average revenue per post-paid private voice-enabled customer
(24) The movement in average revenues is driven by customers leaving or
arriving in a given period, including those customers who change within the
same firm from one tariff plan to another. Together with changes in average
costs these translate to the movement in average margins.
(25) Based on the documents submitted to the Commission, it is not possible to
isolate these effects in the data and so to determine what the actual revenues
and margins associated with new customers are and will be going forward.
However, the effect of both trends, namely decreasing ARPU and increasing
margins, is likely to be higher predicted price increases, provided that the
downward trend in ARPU is at least in part due to a similar downward trend
in the average revenue per new user (and not entirely explained by higher-
than-average revenues of lost users).
(26) If, for instance, the base-case scenario using the quoted contribution margins
were recalculated using an average revenue per new user for Orange equal to
that of H3G's current ARPU (EUR [20-30[)
403
and a contribution margin per
403
Assuming that the stable ARPU of H3G might represent a value towards which Orange in
terms of new business could be converging
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
[…]*
134
new user of EUR [10-20] for H3G,
404
the result is a small increase in the
expected price increase for H3G clients to [10-20]%, but a rather larger
increase in the expected price increase for Orange clients to [10-20]%.
(27) This is because Orange's revenues enter into the equation only for Orange
and they do so in the denominator. The intuition for this is that, for the same
absolute price increase as a result of the merger, a lower initial level of
revenues implies a higher price (and thus revenue) increase relative to the
pre-merger ARPU.
405
(28) Similarly, H3G's higher margin is realized on all new customers and thus, at
constant revenues, also increases the incentive for both it and Orange to raise
prices. This is because those customers who remain with H3G despite the
price increase will deliver higher margins
406
whilst those who, if they switch,
decide to switch to Orange will deliver higher margins still.
407
3. THE PREDICTED PRICE INCREASES ARE ROBUST TO THE IN-
CLUSION OF PREPAID WITHIN THE ANALYSIS
(29) As indicated in the main body of the Decision, the MNP switching data
contains very little information on switching between prepaid and postpaid.
However, the available information suggests that there is very little such
switching.
408
(30) In the interests of robustness, however, the Commission has also made the
calculations on the assumption that the correct revenues and margins to be
used should be the market-wide revenues and margins (excepting data-only),
therefore including pre-paid and business. On such a basis, the blended
ARPU for H3G for the twelve month period considered is reduced to EUR
[10-20] and that of Orange reduced to EUR [20-30], whilst the blended
404
The upward trend in average margins realized by H3G is despite no similar trend in revenues,
and therefore attributable to average costs. The greater part of costs serves to acquire new us-
ers, which suggests that the cost of acquisition is also falling. As a result, new users are more
profitable than in the past. Using the most recent contribution margin is therefore a conserva-
tive assumption.
405
Algebraically, differentiating equation (11) of Hausman et al with respect to p
1
gives –
(d
12
m
2
+d
12
d
21
m
1
)/2(1-d
12
d
21
)p
1
2
, which is necessarily negative given that 0<=d
ij
<=1. In the
case of equation (2) the formula is more complex and there are ranges of values for which this
result does not hold, but they require a very high degree of asymmetry between the merging
parties which in any case does not characterize the present case and may also violate technical
constraints.
406
Differentiating equation (11) of Hausman et al with respect to m
1
gives d
12
d
21
/2(1-d
12
d
21
)p
1
,
which is necessarily positive. In the case of equation (2) the formula is more complex and
there are ranges of values for which this result does not hold, but they require a very high de-
gree of asymmetry between the merging parties.
407
Differentiating equation (11) of Hausman et al for Orange (i.e. Δp
2
/p
2
) with respect to m
1
gives d
21
/2(1-d
12
d
21
)p
2
, which is also necessarily positive. The relative price rises of Orange
and H3G per unit increase in the margins of H3G, calculated by dividing this equation by the
one in the previous footnote, is given by (p
1
/p
2
)*(1/d
12
). Given that H3G's prices are lower
than those of Orange and d
12
is always less than one, both factors contribute to making the
price effect due to an increase in the margins of H3G larger on the side of Orange.
408
See section 6.5.1.2.1. of the Decision.
135
contribution margins are reduced to EUR [5-10] and EUR [10-20]
respectively.
(31) As indicated above, the effect of a reduction in the ARPU is to increase the
anticipated price effect (relative to the pre-merger ARPU) due to the merger,
whereas the effect of a reduction in the margins is to reduce it. Calculating
using equation 2 of the Hausman et al paper as above gives anticipated price
rises of [10-20]*% for a H3G customer and [10-20]*% for an Orange
customer. This is somewhat of a decrease as concerns Orange, where the
margin effect predominates, but it is an increase as regards H3G, where the
effect which predominates is that due to the reduction of the revenue figure.
This result is of course counter-intuitive and results from the artificial
extension of the diversion ratios to the prepaid segment and the artificial
assumption implied by using an average over both segments that switching
between the two segments would occur.
(32) The Commission also carried out the calculation using a blended diversion
ratio weighted by existing customers in which the postpaid component comes
from the MNP and the prepaid component is the one implied on assumptions
of homogeneity by the observed gross adds in the prepaid segment for the
months January to May 2012 as reported in the main body of the decision
above. This blended diversion ratio is [0-5] for H3G to Orange and [0-5] for
Orange to H3G. On such a basis, the predicted price increases would be [10-
20]% for H3G customers and [5-10]% for Orange customers. Although these
are lower than the price increases predicted on the postpaid segment alone,
notwithstanding their artificiality they remain significant.
136
ANNEX III
European Commission
DG Competition
Rue Joseph II 70
B-1000 Brussels
CASE M.6497
HUTCHISON 3G AUSTRIA HOLDINGS GMBH /
ORANGE AUSTRIA TELECOMMUNICATIONS GMBH
COMMITMENTS TO THE EUROPEAN COMMISSION
11 NOVEMBER 2012
Pursuant to Article 8(2) of Council Regulation (EC) No 139/2004 (the Merger Regu-
lation), Hutchison 3G Austria Holdings GmbH (H3G Austria Holdings) hereby pro-
vides the following commitments (the Commitments) in order to enable the European
Commission (the Commission) to declare the acquisition of Orange Austria Tele-
communications GmbH (Orange) (H3G Austria Holdings and Orange are together the
Parties) compatible with the common market by a decision pursuant to Article 8(2) of
the Merger Regulation (the Decision).
The Commitments shall take effect upon the date of adoption of the Decision.
This text shall be interpreted in the light of the Decision, to the extent that the Com-
mitments are attached as conditions and obligations, in the general framework of Un-
ion law, in particular in the light of the Merger Regulation, and by reference to the
Commission Notice on remedies acceptable under Council Regulation (EC) No
139/2004 and under Commission Regulation (EC) No 802/2004.
A. DEFINITIONS
1. For the purposes of the Commitments, the following terms shall have the fol-
lowing meanings:
Auction Spectrum: means the spectrum that the TKK reserves for a new en-
trant in the TKK Auction.
Closing: means the completion of the acquisition of Orange by H3G Austria
Holdings (inter alia) through the transfer of the share capital of Styrol Holding
1 GmbH to H3G Austria Holdings.
Divestment Spectrum: means the spectrum as defined in paragraph 9.
Effective Date: means the date of the adoption of the Decision.
137
First Divestiture Period: means the period from the Effective Date and end-
ing on the date that the TKK publishes the tender documents for the TKK
Auction.
H3G Austria Holdings: means Hutchison 3G Austria Holdings GmbH, a
company incorporated under the laws of Austria with its registered office at
Guglgasse 12/10/3, Gasometer C, 1110 Vienna.
H3G: Hutchison 3G Austria GmbH, a company incorporated under the laws
of Austria with its registered office at Guglgasse 12/10/3, Gasometer C, 1110
Vienna.
H3G Network: means the mobile telecommunications network operated or
used by H3G in Austria from time to time (including for the avoidance of
doubt as it evolves through the integration of the Orange network, as well as
components owned by H3G and third parties) subject to any limitations con-
tained in national roaming or infrastructure (including site) sharing agreements
with third parties.
Licence: means a licence issued under the Austrian Telecommunications Act.
Mobile Virtual Network Enabler: means an entity that provides infrastruc-
ture and services (including core infrastructure services) to enable a mobile
virtual network operator to offer services to end customers.
Monitoring Trustee: means one or more natural or legal person(s), independ-
ent from the Parties, who is approved by the Commission and appointed by
H3G Austria Holdings, who has the duty to monitor H3G Austria Holdings’
compliance with the conditions and obligations attached to the Decision.
MVNO: means a person that:
(a) does not directly or indirectly control, is not controlled by or is not un-
der common control with or is not otherwise affiliated to a mobile net-
work operator active in Austria; and
(b) provides (or wishes to provide) mobile services to end customers under
its own brand name using the network of a mobile network operator;
and
(c) provides for its own core network infrastructure, either through owning
some or all of its own core network or through obtaining some or all of
it from a third party such as a Mobile Virtual Network Enabler or under
separate negotiation and agreement with H3G on the terms and condi-
tions (and cost-oriented charges, taking into account the investment and
operational expenditures made by H3G and allowing for a reasonable
rate of return on the investment and these expenditures); and
(d) does not hold spectrum frequency licence(s) in Austria (i) with respect
to which it has achieved at the date of the signing of the MVNO
Agreement outdoor coverage exceeding 5% of the Austrian population
or (ii) which at the date of the signing of the MVNO Agreement con-
tain outdoor coverage obligations exceeding 5% of the Austrian popu-
lation. For this purpose, population coverage is defined in the same
manner as used in the coverage obligations contained in the existing
spectrum licences for the respective spectrum in Austria or if there is
no defined method, then in the same manner as set out in the Telekom-
Control Commission’s decision of 20 November 2000, K 15e/00
(schedule IV, § 9).
138
MVNO Agreement: means an agreement for wholesale access to the H3G
Network entered into between H3G and the Upfront MVNO (as defined in
paragraph 6) or a Requesting Party, as the context requires.
Purchaser: means the Qualifying New MNO that has been approved by the
Commission as the acquirer of the Divestment Spectrum and the Auction
Spectrum.
Qualifying New MNO: means any undertaking that wishes to become a new
entrant mobile network operator in Austria through the acquisition of the Di-
vestment Spectrum and the Auction Spectrum and does not directly or indi-
rectly control, is not controlled by or is not under common control with or is
not otherwise affiliated to, a mobile network operator active in Austria.
Requesting Party: means an MVNO seeking wholesale access to the H3G
Network for the purposes of offering retail mobile communications services to
end customers as an MVNO in Austria, and which does not directly or indi-
rectly control, is not controlled by or is not under common control with or is
not otherwise affiliated to a mobile network operator active in Austria.
Requesting Party Limit: means the number of Requesting Parties with re-
spect to which their aggregated forecasted traffic at any point in time during
the term of the Commitments is no more than 30% of the capacity of the H3G
Network. For this purpose, the limit of 30% of the capacity of the H3G Net-
work shall be deemed to have been reached if the traffic volume on the H3G
Network exceeds any of the following thresholds in any given month: 180 mil-
lion voice minutes or 900 million MB or 120 million SMS. To take account of
future capacity expansions of the H3G Network, these thresholds shall be in-
dexed according to the volumes published in the latest available RTR Telekom
Monitor for the whole mobile communications market whereby the base value
for indexation shall be the latest volumes published in the RTR Telekom Mon-
itor as per 1 January 2013. For this purpose, the thresholds shall be indexed on
the day following the publication of the most recent RTR Telekom Monitor.
Reference Offer: means the document attached as Annex 1 which is to be
published on H3G’s website in accordance with paragraph 4(a) below.
Second Divestiture Period: means the period of 3 months commencing from
the later of: (a) the end of the period in which an appeal of the TKK Auction
may be lodged and no appeal has been made; or (b) if an appeal has been
lodged with the administrative court and/or the constitutional court within the
applicable time-limit, the date on which the final judgment of such appeal is
handed down.
TKK: means the Telekom-Control Commission, a panel authority established
under section 116ff of the Austrian Telecommunications Act.
TKK Auction: means the forthcoming auction to be held by the TKK which
is currently scheduled to take place in 2013 and which comprises spectrum in
the 800 MHz frequency range reserved for a new entrant to the Austrian mar-
ket.
B. COMMITMENT TO MAKE WHOLESALE ACCESS AVAILABLE TO
REQUESTING PARTIES
2. H3G Austria Holdings commits to procure that upon Closing, H3G will make
available wholesale access to the H3G Network to Requesting Parties up to the
Requesting Party Limit subject to a maximum of 16 Requesting Parties.
139
3. H3G shall not be obliged to carry out the technical implementation of whole-
sale access for more than 2 MVNOs on the H3G Network at any one time.
Provided that if the technical implementation of an MVNO continues for more
than 12 consecutive months, the relevant MVNO shall not be included in the
number of MVNOs for the purposes of calculating the preceding limit.
4. With a view to the access referred to in paragraph 2 being available on fair and
non-discriminatory terms, H3G Austria Holdings commits to procure that:
(a) the details of the terms upon which access is available are published on
the H3G website in the form of the Reference Offer subject to minor
amendments which may be required from time to time; and
(b) where a Requesting Party requests in writing to become an MVNO on
the H3G Network, H3G shall enter into good faith negotiations with a
view to agreeing an MVNO Agreement on the basis of the principles
set out in the Reference Offer. If the parties have not agreed upon the
terms of the MVNO Agreement within a period of 5 months of H3G’s
receipt of the written request, and provided that the CEOs of H3G and
the Requesting Party have not resolved the matters in dispute within 2
weeks of the matter being escalated to them in writing by either party,
a fast track dispute resolution procedure shall apply in accordance with
Section F below.
5. If H3G wishes to enter into MVNO agreements with additional MVNOs above
the Requesting Party Limit, it may do so in its sole discretion and these Com-
mitments (including for the avoidance of doubt the terms contained in the Ref-
erence Offer) do not apply.
C. UPFRONT COMMITMENT TO ENTER INTO AN MVNO AGREE-
MENT
6. H3G Austria Holdings commits to procure that H3G will enter into an MVNO
Agreement based on the Reference Offer with an MVNO to be approved by
the Commission (Upfront MVNO). H3G will not close the acquisition of Or-
ange before the signing of the MVNO Agreement with the Upfront MVNO
and the prior approval of the Commission for the Upfront MVNO.
7. For this purpose, an Upfront MVNO, in order to be approved by the Commis-
sion, must:
(a) be independent of and unconnected to H3G or any mobile network op-
erator active in Austria;
(b) possess the financial resources, proven expertise and incentive to be a
viable and active competitive force in competition with H3G and other
competitors on the Austrian market for mobile communications to end
customers. Companies which fulfil the aforementioned criteria may
(inter alia) include existing MVNOs, companies with telecoms activi-
140
ties, specialised electronic retailers in Austria or mass market retailers
in Austria; and
(c) be expected to obtain, in light of the information available to the
Commission, all necessary approvals from the relevant regulatory au-
thorities to operate as an MVNO in Austria.
8. When H3G has or is about to reach an agreement with the Upfront MVNO,
H3G shall provide the Commission with a copy of the MVNO Agreement and
a fully documented and reasoned statement in writing, enabling the Commis-
sion to verify that the above criteria have been fulfilled and that the MVNO
Agreement is being entered into in a manner consistent with these Commit-
ments. H3G Austria Holdings will be deemed to have complied with the
Commitment in Section C upon approval by the Commission of the Upfront
MVNO and H3G having entered into an agreement with the Upfront MVNO.
D. COMMITMENT TO OFFER FOR SALE THE DIVESTMENT SPEC-
TRUM
9. The Divestment Spectrum consists of 2 x 10 MHz of contiguous spectrum in
the 2.6 GHz frequency band.
10. H3G Austria Holdings commits to procure that H3G shall offer to divest to a
single Qualifying New MNO the Divestment Spectrum in the First Divestiture
Period. Provided that the agreement to sell the Divestment Spectrum in the
First Divestiture Period shall be subject to a condition precedent that the Qual-
ifying New MNO also acquires the Auction Spectrum.
11. If: (a) H3G has not entered into an agreement in the First Divestiture Period to
divest the Divestment Spectrum; or (b) the acquirer of the Divestment Spec-
trum in the First Divestiture Period does not also acquire the Auction Spec-
trum, H3G Austria Holdings commits to procure that H3G shall offer the Di-
vestment Spectrum for sale to the acquirer of the Auction Spectrum in the Se-
cond Divestiture Period. In the case of (a), H3G shall offer the Divestment
Spectrum at no minimum price, but shall not be obliged to sell the Divestment
Spectrum for a price below zero. In the case of (b), the price payable for the
Divestment Spectrum shall be the same price agreed with the acquirer who has
been approved by the Commission during the First Divestiture Period, pro-
vided that such price does not appear unreasonably high, having regard to the
prices paid for similar amounts of spectrum in previous spectrum auctions in
Austria.
12. The Commitment to divest the Divestment Spectrum is subject to the Divest-
ment Spectrum carrying an obligation on the Purchaser to roll-out its network
within a reasonable time period, to be determined by the TKK, to a coverage
area that is equivalent to the minimum coverage area currently required within
the 2.6 GHz frequency band.
13. H3G Austria Holdings will be deemed to have complied with the divestment
Commitment in paragraphs 10 and 11 of Section D if H3G has entered into a
141
binding sale and purchase agreement to sell the Divestment Spectrum to the
acquirer of the Auction Spectrum by the expiration of the Second Divestiture
Period and that acquirer has been approved by the Commission in accordance
with the provisions at paragraphs 16-17 below. Provided that if the Auction
Spectrum is not acquired or if the acquirer of the Auction Spectrum chooses
not to acquire the Divestment Spectrum there shall be no further obligation on
H3G Austria Holdings to procure the divestment of the Divestment Spectrum
and H3G shall be entitled to continue to use the Divestment Spectrum in ac-
cordance with the terms and conditions of the relevant Licence.
14. If the Divestment Spectrum is divested, the Divestment Spectrum will be
cleared and all related Licences, to the extent they relate to the Divestment
Spectrum, will be transferred by H3G to the Purchaser by no later than 1
month after the Second Divestiture Period.
15. If at any point following the divestment of the Divestment Spectrum, the Pur-
chaser no longer qualifies as a Qualifying New MNO, H3G shall have the
right, subject to applicable approvals under Austrian and/or EU law including
from the TKK, to re-acquire the Divestment Spectrum from the Purchaser at
the same price as the Purchaser has paid to H3G and, in such circumstances,
the Purchaser shall be required to clear and return the Divestment Spectrum to
H3G within a period of 6 months.
The Purchaser
16. The Divestment Spectrum shall be divested only to a Qualifying New MNO
that has been approved by the Commission. In order to be approved by the
Commission, the Qualifying New MNO must:
(a) have acquired or intend to acquire the Auction Spectrum;
(b) be independent of and unconnected to H3G or any mobile network op-
erator active in Austria;
(c) have the serious and bona fide intention to enter the Austrian market
for mobile communications to end customers;
(d) have the financial resources, proven expertise and incentive to use the
Divestment Spectrum as a viable and active competitive force in com-
petition with H3G and other competitors on the Austrian market for
mobile communications to end customers; and
(e) neither be likely to create, in light of the information available to the
Commission, prima facie competition concerns nor give rise to a risk
that the implementation of the Commitments will be delayed, and
must, in particular, reasonably be expected to obtain all necessary ap-
provals from the relevant regulatory authorities for the acquisition of
the Divestment Spectrum, (the Purchaser Requirements).
142
17. The final binding sale and purchase agreement shall be conditional on the
Commission’s approval. When H3G has reached or is about to reach an
agreement with a Qualifying New MNO, H3G Austria Holdings shall submit a
fully documented and reasoned proposal including a copy of the final agree-
ment to the Commission and the Monitoring Trustee. H3G Austria Holdings
must be able to demonstrate to the Commission that the Qualifying New MNO
meets the Purchaser Requirements and that the Divestment Spectrum is being
sold in a manner consistent with the Commitments. For the approval, the
Commission shall verify that the Qualifying New MNO fulfils the Purchaser
Requirements and that the Divestment Spectrum is being sold in a manner
consistent with the Commitments.
Related commitments
18. If the Divestment Spectrum is divested, H3G Austria Holdings shall procure
that:
(a) H3G shall offer the Purchaser national roaming on the H3G Network
on the basis of the same charges and substantially the same terms as
contained in the Reference Offer attached as Annex 1 mutatis mutandis
except that paragraphs 9, 10, 46, 48 and 49 of the Reference Offer will
not apply. The term of the national roaming agreement will be for a
period of up to 6 years from the end of the Second Divestiture Period
provided that this term shall not extend beyond 10 years after the Ef-
fective Date. H3G shall have a right to terminate the national roaming
agreement if the Purchaser requests more than 30% of the capacity of
the H3G Network (as defined in accordance with the Requesting Party
Limit in Section A above). H3G shall offer mobility scenarios (hand
over and reselection) and potential radio network adoptions (e.g. loca-
tion area barring), based on the principle that the Purchaser shall bear
any network implementation costs which H3G may reasonably incur in
order to accommodate such requests. The detailed terms shall be sub-
ject to good faith negotiation and agreement between H3G and the
Purchaser;
(b) H3G shall offer the Purchaser co-location (within the meaning of sec-
tion 8 (2) of the Austrian Telecommunications Act) on its existing
sites, if technically feasible and subject to the underlying terms of the
relevant site leases. Co-location rights shall be granted to the Pur-
chaser on standard market terms. In addition, for the period of up to 6
years from the end of the Second Divestiture Period provided that this
term shall not extend beyond 10 years from the Effective Date:
(i) H3G shall inform the Purchaser in a timely manner before
new sites are being installed in the H3G Network;
(ii) in the event of simultaneous requests for co-location on the
same site by the Purchaser and a third party, the Purchaser
shall have a preferred right to enter into a co-location agree-
ment for such space on standard market terms for a period of
143
two weeks from the day on which H3G has informed the Pur-
chaser of the third party co-location request. This right of the
Purchaser is subject to any contractual rights of third parties
which may have already been granted by H3G prior to the Ef-
fective Date; and
(iii) H3G shall inform the Purchaser of any co-location requests
by third parties to the extent that granting a co-location right
in response to such a request would eliminate the last avail-
able co-location possibility on the relevant site. In the event
of such a request, the Purchaser shall have a preferred right to
enter into a co-location agreement on standard market terms
for a period of two weeks from the day on which H3G has in-
formed the Purchaser of the third party co-location request.
This right of the Purchaser is subject to any contractual rights
of third parties which may have already been granted by H3G
prior to the Effective Date; and
(c) H3G shall offer to divest to the Purchaser on commercial terms any
sites which, following the acquisition of Orange, are not required by
H3G for the H3G Network and which have not been separately sold to
third parties. This Commitment shall be implemented as follows:
(i) for a period of 2 years from the end of the Second Divestiture
Period H3G shall provide the Purchaser on a monthly basis
with a list of sites for which H3G intends to terminate the site
lease contracts provided that H3G shall not be required to of-
fer or divest any sites to the Purchaser under this paragraph
18(c) after 31 August 2015; and
(ii) upon the issue of each such list, the Purchaser shall have a pe-
riod of 1 month to make a binding selection of the sites on
that monthly list which it will purchase. This binding selec-
tion shall include a commitment by the Purchaser to purchase
the sites at a maximum price of book value and the legal title
to such sites shall be transferred to the Purchaser as soon as
practically possible for H3G and thereafter all operational and
other costs related to the relevant sites shall be the responsi-
bility of the Purchaser.
The above shall not prevent H3G from terminating site contracts as
part of its network consolidation project, provided that there shall be
2000 sites for potential divestment as at 1 September 2013.
E. MONITORING TRUSTEE
Appointment of the Monitoring Trustee
19. H3G Austria Holdings shall appoint a Monitoring Trustee to carry out the
functions specified in paragraph 26 below. The Monitoring Trustee shall be
144
independent of the Parties, possess the necessary qualifications to carry out its
mandate, and shall neither have nor become exposed to a conflict of interest.
20. The Monitoring Trustee shall be remunerated by H3G Austria Holdings in a
way that does not impede the independent and effective fulfilment of the Mon-
itoring Trustee’s mandate.
Proposal by H3G Austria Holdings
21. No later than 1 week after the Effective Date, H3G Austria Holdings shall
submit a list of two or more persons whom H3G Austria Holdings proposes to
appoint as the Monitoring Trustee to the Commission for approval. The pro-
posal shall contain sufficient information for the Commission to verify that the
proposed Monitoring Trustee fulfils the requirements set out in paragraph 19
and shall include:
(a) the full terms of the proposed mandate, which shall include all provi-
sions necessary to enable the Monitoring Trustee to fulfil its duties un-
der the Commitments; and
(b) the outline of a work plan, which describes how the Monitoring Trus-
tee intends to carry out its assigned tasks.
Approval or rejection by the Commission
22. The Commission shall have the discretion to approve or reject the proposed
Monitoring Trustee(s) and to approve the proposed mandate subject to any
modifications it deems necessary for the Monitoring Trustee to fulfil its obli-
gations. If only one name is approved, H3G Austria Holdings shall appoint or
cause to be appointed, the individual or institution concerned as Monitoring
Trustee, in accordance with the mandate approved by the Commission. If
more than one name is approved, H3G Austria Holdings shall be free to
choose the Monitoring Trustee to be appointed from among the names ap-
proved. The Monitoring Trustee shall be appointed within 1 week of the
Commission’s approval, in accordance with the mandate approved by the
Commission.
New proposal by H3G Austria Holdings
23. If all the proposed Monitoring Trustees are rejected, H3G Austria Holdings
shall submit the names of at least 2 more individuals or institutions within 1
week of being informed of the rejection, in accordance with the requirements
and procedure set out in paragraphs 19 and 22.
Monitoring Trustee nominated by the Commission
24. If all further proposed Monitoring Trustees are rejected by the Commission,
the Commission shall nominate a Monitoring Trustee, whom H3G Austria
Holdings shall appoint, or cause to be appointed, in accordance with a trustee
145
mandate approved by the Commission. This Monitoring Trustee shall also
fulfil the requirements set out in paragraph 19.
Functions of the Monitoring Trustee
25. The Monitoring Trustee shall assume its specified duties in order to ensure
compliance with the Commitments. The Commission may, on its own initia-
tive or at the request of the Monitoring Trustee or H3G Austria Holdings, give
any orders or instructions to the Monitoring Trustee in order to ensure compli-
ance with the conditions and obligations attached to the Decision.
Duties and obligations of the Monitoring Trustee
26. The Monitoring Trustee shall:
(a) propose in its first report to the Commission a detailed work plan de-
scribing how it intends to monitor compliance with the obligations and
conditions attached to the Decision;
(b) monitor compliance by H3G Austria Holdings with the obligations and
conditions provided in Sections B and D of the Commitments;
(c) upon notification from H3G Austria Holdings, verify (and confirm to
the Commission) whether 30% of the H3G Network has been reached
for the purpose of the obligations in paragraphs 2 and 18;
(d) assume the other functions assigned to the Monitoring Trustee under
the conditions and obligations attached to the Decision;
(e) in case of a divestment of the Divestment Spectrum by way of private
sale, review and assess potential purchasers as well as the progress of
the divestiture process in Section D;
(f) report to the Commission on the design and progress of the TKK Auc-
tion;
(g) in case a Purchaser requests co-location, monitor H3G’s compliance
with the obligations in paragraph 18(b);
(h) in case of a divestment of sites, monitor H3G’s compliance with the
obligations in paragraph 18(c);
(i) propose to H3G Austria Holdings such measures as the Monitoring
Trustee considers necessary to ensure H3G Austria Holdings’ compli-
ance with the conditions and obligations attached to the Decision;
(j) provide to the Commission, sending H3G Austria Holdings a non-
confidential copy at the same time, a written report within 15 calendar
days after the end of every calendar month for the first 3 months and
from then on within 15 calendar days after the end of each 6 month pe-
riod for the duration of the Commitments. The report shall cover de-
146
velopments in relation to the negotiation of MVNO Agreements with
Requesting Parties and the progress of the divestiture process, the co-
location process and the divestiture process, so that the Commission
can assess whether H3G Austria Holdings is complying with its obliga-
tions under the Commitments;
(k) within one week after receipt of the documented proposal referred to in
paragraph 17, submit to the Commission a reasoned opinion as to the
suitability and independence of the proposed purchaser and whether
the Divestment Spectrum is sold in a manner consistent with the
Commitments
(l) in addition to these periodic reports, promptly report in writing to the
Commission, sending H3G Austria Holdings a non-confidential copy
at the same time, if it concludes on reasonable grounds that H3G Aus-
tria Holdings is failing to comply with any of the Commitments; and
(m) monitor the fast-track dispute resolution process in Section F and, in
this context, provide to the Commission:
(i) a report (on a fortnightly basis) on the progress of any ongo-
ing dispute resolution process; and
(ii) a final report detailing the outcome of any dispute resolution
procedure within 7 days of a determination by the Expert.
27. The documents provided for above shall be prepared in English.
Duties and obligations of H3G Austria Holdings
28. H3G Austria Holdings shall, and commits to procure that H3G shall, provide
and shall cause its advisors to provide the Monitoring Trustee with all such co-
operation, assistance and information as the Trustee may reasonably require to
perform its tasks. The Monitoring Trustee shall have full and complete access
to any of H3G’s business books, records, documents, management or other
personnel, facilities, sites and technical information necessary for fulfilling its
duties under the Commitments. H3G Austria Holdings shall, and commits to
procure that H3G shall, provide the Monitoring Trustee upon request with
copies of any document. H3G Austria Holdings shall procure that H3G makes
available to the Monitoring Trustee one or more office(s) on its premises, and
that H3G shall be available for meetings in order to provide the Monitoring
Trustee with all information necessary for the performance of its tasks.
29. H3G Austria Holdings shall indemnify the Monitoring Trustee and its em-
ployees and agents (each an Indemnified Party) and hold each Indemnified
Party harmless against, and herby agrees that an Indemnified Party shall have
no liability to H3G Austria Holdings for, any liabilities arising out of the per-
formance of the Monitoring Trustee’s duties under the Commitments, except
to the extent that such liabilities result from the wilful default, recklessness,
147
gross negligence or bad faith of the Monitoring Trustee, its employees, agents
or advisors.
30. At the expense of H3G Austria Holdings, the Monitoring Trustee may appoint
advisors which are independent of the Parties (in particular for legal advice),
subject to H3G Austria Holdings’ prior approval (this approval not to be un-
reasonably withheld or delayed) if the Monitoring Trustee reasonably consid-
ers the appointment of such advisors necessary or appropriate for the perform-
ance of its duties and obligations under its mandate, provided that any fees and
other expenses incurred by the Monitoring Trustee are reasonable. Should
H3G Austria Holdings refuse to approve the appointment of advisors proposed
by the Monitoring Trustee, the Commission may approve the appointment of
such advisors, after having heard representations from H3G Austria Holdings.
Only the Monitoring Trustee shall be entitled to issue instructions to any ap-
pointed advisors. Paragraph 29 shall apply mutatis mutandis.
Replacement, discharge and re-appointment of the Monitoring Trustee
31. If the Monitoring Trustee ceases to perform its functions under the Commit-
ments or for any other good cause, including exposure to a conflict of interest:
(a) the Commission may, after hearing the Monitoring Trustee, require
H3G Austria Holdings to replace the Monitoring Trustee; or
(b) H3G Austria Holdings, with the prior approval of the Commission,
may replace the Monitoring Trustee.
32. If the Monitoring Trustee is removed according to paragraph 31, the Monitor-
ing Trustee may be required to continue in its function until a new Monitoring
Trustee is in place to whom the outgoing Monitoring Trustee has effected a
full hand-over of all relevant information. The new Monitoring Trustee shall
be appointed in accordance with the procedure referred to in paragraphs 19 to
24.
33. Besides the removal according to paragraph 31, the Monitoring Trustee shall
cease to act as Monitoring Trustee only after the Commission has discharged it
from its duties after all the Commitments with which the Monitoring Trustee
has been entrusted have been implemented. However, the Commission may at
any time require the reappointment of the Monitoring Trustee if it subse-
quently appears that the Commitments might not have been fully and properly
implemented.
F. FAST-TRACK DISPUTE RESOLUTION
34. A fast-track dispute resolution procedure shall apply in respect of any dispute
arising between H3G and a Requesting Party concerning the negotiation of
terms of an MVNO Agreement prior to the signing of an MVNO Agreement.
35. If H3G and a Requesting Party have not agreed upon the terms of an MVNO
Agreement within a period of 5 months from H3G’s receipt of a written re-
148
quest, and provided that the CEOs of H3G and the Requesting Party have not
resolved the matters in dispute within 2 weeks of the matter being escalated to
them in writing by either party, the fast track dispute resolution procedure be-
low shall apply upon written notice by one party to the other.
36. H3G and the Requesting Party shall appoint a panel of experts (the Expert) to
determine any such dispute.
37. This panel shall comprise:
(a) one expert appointed by H3G;
(b) one expert appointed by the Requesting Party; and
(c) one expert appointed by the two experts so appointed provided that if
they fail to appoint the third expert within 15 calendar days from their
appointment, either party may request the Chairman of the Rundfunk
und Telekom Regulierungs-GmbH to appoint the third expert,
provided that each person so appointed shall be an independent, suitably quali-
fied and experienced expert.
38. The process shall be conducted in private and shall be confidential but under
supervision of the Monitoring Trustee. The language of the process shall be in
English or German, and shall be so determined by the unanimous agreement of
the Expert and the Monitoring Trustee.
39. The Expert shall act on the following basis:
(a) the Expert shall act fairly and impartially;
(b) each party shall submit to the Expert its brief and its submission in re-
lation to the matter in dispute within 5 calendar days of the Expert's
appointment;
(c) the Expert shall decide the procedure to be followed within 5 calendar
days of their appointment, which may be the rules of arbitration and
conciliation of the International Arbitral Centre of the Austrian Federal
Economic Chamber (Vienna Rules);
(d) the parties shall assist and provide such documentation as the Expert
reasonably requires for the purposes of the determination;
(e) the Expert shall make its determination taking into account the follow-
ing principles:
(i) the Requesting Party’s ability to obtain wholesale access to
the H3G Network on the terms set out in Section B;
(ii) the provisioning of the H3G Network for access by a Re-
questing Party not compromising or threatening to compro-
149
mise the integrity, quality, capacity and operational perform-
ance of the H3G Network to the detriment of either H3G or
other MVNOs providing services over the H3G Network; and
(iii) the provision of wholesale access being effected in the most
cost effective manner for both H3G and the MVNO, and not
increasing the cost of the operation of the H3G Network be-
yond what would be reasonably expected in order to imple-
ment an MVNO Agreement on the basis of the terms and
conditions (including charges) in the Reference Offer.
(f) decisions of the Expert shall be based on majority votes of the panel;
(g) the Expert’s determination shall be given within a maximum period of
3 months of the Expert’s appointment;
(h) the Expert's determination shall (save for manifest error or fraud) be
final and binding on the parties;
(i) each party shall carry out the actions required to comply with the obli-
gations set out in the Expert’s determination within any time-limits
specified by the Expert. If the Requesting Party fails to comply with
applicable obligations set out in the Expert’s determination, H3G Aus-
tria Holdings, acting reasonably, may choose not to continue negotia-
tions, or enter into an MVNO Agreement, with that Requesting Party;
and
(j) the Expert shall determine how and by whom the costs of the determi-
nation including the fees and expenses of the Expert are to be paid.
40. The Commission shall be allowed and enabled to participate in all stages of
the fast-track dispute resolution procedure by:
(a) receiving all written submissions (including documents and reports,
etc.) made by the parties to the procedure;
(b) receiving all documents exchanged by the Expert with the parties to the
procedure;
(c) filing any Commission amicus curiae briefs; and
(d) being present at the hearing(s) in Vienna and being allowed to ask
questions to parties.
41. The Expert shall forward, or shall order the parties to the procedure to for-
ward, the documents mentioned to the Commission without delay.
42. The Monitoring Trustee shall receive copies of:
150
(a) all submissions made by the parties in relation to the matters they wish
to have resolved by the Expert, on the day when these have been sub-
mitted to the Expert;
(b) all other documentation provided by the parties, on the day when these
have been submitted to the Expert; and
(c) the determination made by the Expert, on the day when the determina-
tion has been provided to the parties.
43. Following the signing of an MVNO Agreement, the dispute procedure set out
above shall no longer apply. This is without prejudice to any other rights and
remedies that may be available to a Requesting Party or H3G as the case may
be in respect of any breach of an MVNO Agreement as a matter of contract
law or otherwise, including without limitation a party’s right to seek, obtain
and implement injunctive, interlocutory or other immediate relief.
G. FINAL PROVISIONS
I. DURATION
44. The Commitment in Section B shall expire on the date which is the earlier of:
(a) the date on which (i) H3G has transferred the Divestment Spectrum to
a Purchaser and (ii) the Auction Spectrum has been transferred to the
Purchaser;
(b) the date on which a new entrant MNO enters the market; or
(c) 10 years from the Effective Date.
Provided that:
(i) in the case of sub-paragraphs (a) and (b), H3G shall continue to fulfil
its obligations under all existing MVNO Agreements it has entered as at that
date in accordance with the terms and conditions of such agreements (includ-
ing, for the avoidance of doubt, the rights of extension contemplated in para-
graph 46 of the Reference Offer and the relevant MVNO Agreement); and
(ii) in the case of sub-paragraph (c), in 2022 (being the tenth year of the
Commitments), H3G shall not be obliged to enter into an MVNO Agreement
for a period longer than 2 years.
45. The Commitment in Section C shall expire upon fulfilment in accordance with
paragraph 8.
46. The Commitments in paragraphs 10 and 11 of Section D shall expire upon
fulfilment in accordance with paragraph 13. The Commitments in paragraph
18 of Section D shall expire at the end of the respective periods specified in
paragraphs 18 (a), (b) and (c).
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II. REVIEW
47. The Commission may, where appropriate, in response to a request from H3G
Austria Holdings showing good cause and accompanied by a report from the
Monitoring Trustee:
(a) grant an extension of the time periods foreseen in the Commitments; or
(b) waive, modify or substitute, in exceptional circumstances, one or more
of the undertakings in the Commitments.
48. In determining whether exceptional circumstances may justify a waiver, modi-
fication or substitution of the Commitments at the request of H3G Austria
Holdings, the Commission will take into account inter alia significant changes
in market circumstances, applicable laws and/or the regulatory environment.
…………………………………………
Name: Thomas Wessely / Angeline Woods
Date: 29 October 2012
Duly authorised on behalf of Hutchison 3G Austria Holdings
152
ANNEX 1: REFERENCE OFFER
This Reference Offer is published pursuant to Commission Decision M. 6497 Hutchison 3G
Austria Holdings GmbH / Orange Telecommunication GmbH.
This Reference Offer sets out the key commercial principles and charges for the provision of
MVNO wholesale access to the H3G Network for the purpose of providing electronic com-
munications services to end users in Austria.
A. WHOLESALE ACCESS OFFER
1. Where a Requesting Party reasonably requests in writing to become an MVNO on the
H3G Network, H3G shall offer the following services:
(a) wholesale access to the H3G Network for the origination and termination of
circuit switched, SMS, packet switched data (including MMS) services to
MVNO customers;
(b) wholesale access to the H3G Network for the provision of value added services
to MVNO customers;
(c) location data for emergency call delivery services with respect to MVNO cus-
tomers; and
(d) location data and real time CDRs for legal interception services with respect to
MVNO customers.
The technical specification for the services and the network access requirements will
be made available on request and without undue delay.
2. The above wholesale access services are available using the mobile network technolo-
gies which H3G uses to deliver services to its customers from time to time (UMTS,
HSPA, HSDPA and LTE, as well as GSM and GPRS to the extent available under its
2G and 2.5G roaming arrangements).
3. H3G shall grant the MVNO access to future evolutions in mobile technologies and/or
new products based on existing technologies which were not offered by H3G in Aus-
tria as at [insert Effective Date] (for example differentiated quality of service offers)
within a reasonable period of the commercial launch of the new technology and/or
new products by H3G unless such access is not technically feasible, and subject to ne-
gotiation and agreement between H3G and the MVNO of the terms and conditions
(and, if applicable, charges). Such period is not to exceed 8 weeks if H3G is the first
operator in the market to launch the new technology and/or new product or 4 weeks if
the new technology and/or new product has already been commercially launched by a
competitor of H3G. If the terms and conditions (and, if applicable, charges) for access
to such future evolutions in mobile technologies and/or new products are agreed be-
tween H3G and the MVNO, such “service” will become a service under the MVNO
Agreement.
4. At the request of the MVNO, H3G shall, at no extra cost, make available a copy of its
mobile number portability database as at the date of the MVNO Agreement.
153
5. Subject to Section A 6, the MVNO shall be responsible for making its own arrange-
ments to meet its obligations as a public communications network operator under Aus-
trian law.
6. H3G will consider all reasonable requests to provide assistance with respect to emer-
gency call delivery services, legal intercept services, numbering and mobile number
portability. The provision of any such assistance by H3G shall be subject to separate
negotiation and agreement between H3G and the MVNO of the terms and conditions
(and charges).
7. This Reference Offer covers only the services set out in Section A 1 above, and not,
for instance, the following services (a) the provision of all or part of the core network
infrastructure such as the interconnection between the H3G and Requesting Party, or
between the Requesting Party and other mobile or fixed network operators (b) the pro-
vision of a mobile number portability platform (c) transit or routing services or
(d) international roaming services. H3G shall consider reasonable requests for addi-
tional services. The provision of any such services by H3G shall be subject to separate
negotiation and agreement between H3G and the MVNO of the terms and conditions
(and cost-oriented charges, taking into account the investment and operational expen-
ditures made by H3G and allowing for a reasonable rate of return on the investment
and these expenditures), and shall not form part of the MVNO Agreement.
8. This Reference Offer is subject to the Requesting Party and H3G entering into an
MVNO agreement on reasonable terms and conditions which shall include the com-
mercial terms set out in this Reference Offer.
9. This Reference Offer is available to up to (a) 16 Requesting Parties enabling them to
offer retail mobile communications services to end customers in Austria or (b) such
lower number of MVNOs for which the aggregate forecasted traffic at any point in
time during the term of the MVNO Agreements is no more than 30% of the capacity
of the H3G Network.
10. H3G Austria Holdings shall not be obliged to carry out the technical implementation
of wholesale access for more than 2 MVNOs on the H3G Network at any one time.
Provided that if the technical implementation of an MVNO continues for more than 12
consecutive months, the relevant MVNO shall not be included in the number of
MVNOs for the purposes of calculating the preceding limits.
B. CHARGES
11. The charges payable by the MVNO for the services in Section A 1(a) above (circuit
switched, SMS, packet switched data (including MMS) services) shall be calculated in
accordance with the rates and conditions set out in Appendix A of this Reference Of-
fer. Provided that H3G may pass on to the MVNO any additional fees or charges that
have been levied on H3G under Austrian law and/or at the direction of a competent
authority (or which H3G is required to charge to the MVNO) to the extent that they re-
late to the network access services being provided to the MVNO. The rates in Appen-
dix A are subject to price indexation in accordance with Section C below.
12. Charges payable for the services in Section A 1(b) (value added services) or any other
service (including differentiated quality of service offers or any administrative and
other handling services with respect to emergency call delivery and legal intercept)
154
shall be subject to negotiation and agreement between H3G and the MVNO of the
terms and conditions (including charges).
13. All interconnection fees for the termination and origination of circuit switched ser-
vices and SMS by or to MVNO customers shall be for the account of the MVNO, and
shall be paid and settled directly between the MVNO and the interconnecting mobile
and/or fixed network operator (including H3G) as the case may be.
14. The MVNO shall provide an on demand financial security (in the form of a bank guar-
antee) (“Security”) to H3G in an amount equal to the Security Amount. For this pur-
pose the “Security Amount” shall be an amount equal to the average monthly charge
payable based on the 12 month rolling forecast provided by the MVNO from time to
time multiplied by 3. The Security Amount shall be recalculated each time the MVNO
provides its 12 month rolling forecast as described in Section F below. H3G may
drawdown on the Security in accordance with its terms at any time during or after ter-
mination of the MVNO Agreement to satisfy any amounts due and payable to H3G
(including any charges) that remain unpaid by the relevant due date. The MVNO shall
maintain the level of the applicable Security Amount and shall replenish the Security
within 30 working days of (a) receipt of notice from H3G that it has drawn down on
the Security or (b) the provision of its 12 month rolling forecast if there is a shortfall
between the Security Amount calculated on the basis of that forecast compared to the
Security Amount calculated in relation to the immediately preceding 12 month fore-
cast.
15. All charges will be payable in Euros and are exclusive of VAT.
16. H3G will issue invoices monthly, which shall be payable within 30 days.
C. PRICE INDEXATION
17. The charges set out in Appendix A are subject to retail price indexation. H3G and the
MVNO shall negotiate in a good faith a reasonable price indexation mechanism, tak-
ing into consideration the ability of the MVNO to offer competitive products and ser-
vices to end-users. Reasonable price indexation mechanisms may include an index
based on retail prices published by the Rundfunk & Telekom Regulierungs-GmbH or
an index based on the prices of H3G.
D. IMPLEMENTATION AND IMPLEMENTATION FEE
18. The MVNO Agreement shall specify the technical implementation work required in
order to provide wholesale access to the H3G Network, including the responsibilities
of H3G and the MVNO and the agreed project plan.
19. H3G may charge the MVNO a set-up fee of up to €200,000, payable in two equal in-
stalments. The first instalment shall be payable on signature of the MVNO Agreement
and the second instalment shall be payable on the earlier of the commercial launch by
the MVNO of its retail services and 9 months from the signature of the MVNO
Agreement. The implementation fee is subject to the Austrian consumer price index
(“Verbraucherpreisindex”).
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E. NON-DISCRIMINATION OBLIGATION
20. H3G shall supply the same quality of service and coverage to the MVNO in respect of
the MVNO customers as it does to its own customers and to those of other MVNOs on
the H3G Network, including with respect to suspension of services for maintenance
(including repairs, upgrades and modifications to the H3G network) and emergencies.
21. H3G has the right to manage the traffic flow on its network (including that of the
MVNO customers) in order to maintain network integrity or to improve the service for
a larger range of customers in a cell. The reduction of the portfolio of services offered
by H3G to its customers could also result in comparable limitations on the services of-
fered by the MVNO to its customers, subject to H3G providing the MVNO a lead time
of 1 month.
22. For the avoidance of doubt, the retail offer by H3G to its customers of any new tech-
nologies or products which H3G has offered to the MVNO in accordance with Section
A 3, and which the MVNO has chosen not to offer to its customers, shall not be con-
sidered a breach of the non-discrimination obligations contained in this Section E.
23. H3G shall be permitted to monitor and conduct internal analyses of the MVNO cus-
tomers for network quality assurance purposes as it does so with respect to its own
customers and those of other MVNOs on the H3G Network.
F. FORECASTS
24. The MVNO Agreement shall include forecast requirements which shall be limited to
the minimum extent necessary for capacity management purposes.
25. Following the commercial launch by the MVNO, the MVNO shall on an annual basis
provide H3G, no later than on the 15
th
of September of each year (the “Forecasting
Date”), a forecast for each month of the ensuing 12 month period from the September
to the August inclusive and an annual forecast for a further 4 years (the “Forecast").
In the absence of any Forecast for the applicable 12 month period, the actual traffic
volumes of the immediately preceding 12 month period (September to August inclu-
sive) shall be deemed to be submitted as the Forecast.
26. Each Forecast shall show the volume of voice (minutes), data (megabytes) and SMS
traffic (SMS messages) expected to be generated by the MVNO’s customers per cal-
endar month within the 12 month Forecast and on an annual basis for the remaining 4
years of the forecasting period.
27. Each 12 month Forecast for each type of traffic (voice, data and SMS) shall be non-
binding on the MVNO as long as the individual monthly forecasts (for each type of
traffic) in any Forecast do not exceed the respective non-binding thresholds of 30 mil-
lion voice minutes, 150 million MB or 20 million SMS respectively (the “Maximum
Non-Binding Forecast”). The components of the Maximum Non-Binding Forecast
shall at the beginning of each forecasting period be indexed according to the volumes
published in the latest available RTR Telekom Monitor for the whole mobile commu-
nications market whereby the base value for indexation shall be the latest volumes
published in the RTR Telekom Monitor as per 1 January 2013, reflecting market de-
velopment on voice, data and SMS traffic. The reference date for the indexation of the
Maximum Non-Binding Forecast shall be the most recent RTR Telekom Monitor pre-
ceding the Forecasting Date. Any forecast for a particular traffic type (voice, data or
156
SMS) in excess of the relevant Maximum Non-Binding Forecast shall be binding
(“Binding Forecast”). For the avoidance of doubt, the Binding Forecast shall only re-
fer to the first 12 month period of the Forecast.
28. In addition to the Forecast, the MVNO shall provide H3G with non-binding quarterly
update forecasts which shall be taken into account for interim capacity planning pur-
poses.
29. If on the basis of the Binding Forecast H3G envisages the need for investment in ca-
pacity upgrades to the H3G Network, H3G shall within 20 business days from receipt
of the Forecast notify the MVNO in writing: (a) with its best estimate of the cost of
such investment attributable to the MVNO on the basis of the proportion of traffic in-
crease forecast by the MVNO relative to the total forecast increase in capacity re-
quired by H3G (for all retail and wholesale customers); and (b) the maximum possible
volumes to be handled without the need for such investment. If the MVNO adjusts its
Binding Forecast in writing within 10 business days from such notification, the up-
dated Forecast shall be deemed to be the Forecast for the applicable Forecasting Date.
H3G shall provide for the required capacity to handle the forecasted traffic (including
Binding Forecasts) on the condition that:
(a) the MVNO acknowledges and accepts that H3G is permitted to manage the
traffic in relation to, and selectively for, the MVNO’s customers if and to the
extent that the actual usage is in excess of 125% of the Forecast and if such ex-
cess usage would cause degradation of the quality of the H3G Network; and
(b) if actual usage falls short of 75% of the Binding Forecast and H3G has in-
vested in the capacity upgrade of the H3G Network earlier than necessary for
its own forecasted traffic in order to meet volumes in the Binding Forecast, and
H3G has duly notified the MVNO, H3G is entitled to charge the MVNO rea-
sonable financing costs for such investment. Provided that the financing costs
shall only be payable by the MVNO if: (i) the period is more than 6 months be-
tween the actual investment made by H3G to the time the MVNO's actual us-
age meets 75% of the highest monthly volume in the Binding Forecast or (ii)
the period is more than 6 months between the actual investment made by H3G
to the time when such investment becomes necessary for H3G’s own traffic
requirements plus the actual usage of the MVNO. If neither event occurs, and
will not foreseeable occur within 5 years from the Forecasting Date, the
MVNO shall be responsible for both the financing costs and the investment
costs. The amount of the investment costs for this purpose shall be capped at
the charges which would have become due and payable for the shortfall be-
tween the actual usage and 75% of the Binding Forecast.
G. ACCESS TO AND USE OF MVNO CUSTOMER INFORMATION
30. To the extent that H3G personnel have access to the forecast information provided
under Section F above or to data relating to the MVNO’s customers, H3G shall ensure
that access is limited to persons who require access solely for the purposes described
in Section F above (in relation to the forecast information) and paragraph 31 below (in
relation to any customer data).
31. H3G and the MVNO shall agree that customer data provided by the MVNO to H3G
shall be limited to the minimum necessary for the purposes described below. The
157
MVNO shall permit H3G to use traffic and location data related to the MVNO cus-
tomers, and to supply such data to third parties, solely to the extent necessary for the
purposes of legal interception, billing, capacity management, traffic management,
fraud detection, routing and cell identification and other technical purposes required
for the provision of wholesale access to the MVNO or otherwise in order to comply
with applicable laws or the directions of a competent authority.
H. NUMBERING
32. The MVNO shall be solely responsible for meeting its numbering requirements under
Austria law and H3G shall be under no obligation to manage any part of its numbering
requirements.
33. In order to allow proper system configuration and unique user identification by H3G,
the MVNO shall provide H3G with (a) the IMSI range to be used by the MVNO’s
customers on the H3G Network (including any sub-ranges being used by the MVNO’s
customers) and (b) the MSISDN range to be used by the MVNO’s SIMs on the H3G
Network.
I. PRIVACY AND DATA PROTECTION
34. H3G and the MVNO shall each comply with relevant data protection and privacy laws
with respect to the processing of the MVNO customer data (including traffic and loca-
tion data).
J. USE OF THE H3G NETWORK
35. The MVNO shall take all reasonable steps to maintain the quality of the H3G Net-
work.
36. The MVNO shall:
(a) not use the wholesale access services or allow any customer or other third par-
ty to use the services for any immoral, obscene, harmful, offensive or unlawful
purpose;
(b) not connect or allow any customer or other third party to connect to the H3G
Network any mobile device (whether a handset, USIM or other device) unless
the device is compliant with international technical standards;
(c) provide H3G with information on all planned UE (user equipment) / CPE (cus-
tomer premises equipment) at least 10 days before the MVNO makes such
equipment commercially available;
(d) not connect or allow any customer or other third party to duplicate MVNO
SIM cards (with one and the same IMSI) or manipulate MVNO SIM cards for
roaming fraud, premium rate service abuse, SMS spamming/faking, intercon-
nect fraud, subscription fraud or similar fraud and abuse;
(e) not connect or allow any customer or other third party to connect or continue
the connection of any equipment that allows the bypass of interconnect costs
through terminating fixed to mobile calls as mobile to mobile calls (“Gate-
way”) to the H3G Network without H3G’s prior written consent;
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(f) monitor activities involving fraud, artificially inflated traffic and any other
breaches of security connected with the use of the H3G Network including the
unauthorised use of any Gateway, and notify H3G immediately of such activi-
ties;
(g) comply with any security requirements in relation to access to the H3G Net-
work and systems, and comply with all reasonable instructions issued by H3G
in relation to the use of the wholesale access services;
(h) not make any disparaging remarks about the H3G Network, nor mislead or
make any false statements or representations in respect of the H3G Network;
(i) comply with all directions issued by H3G reasonably necessary to assist it in
complying with any regulatory requirement;
(j) not use the wholesale access purchased from H3G in conjunction with with
services it has acquired from another mobile network operator in Austria (ex-
cluding, for the avoidance of doubt, interconnection);
(k) not use the H3G Network to allow a third party to provide mobile communica-
tions services in Austria to end customers;
(l) not seek to sell MVNO services to any customer whose residence or place of
business is outside Austria; and
(m) not act in a manner which would lead to a lower quality of service and cover-
age for H3G’s customers compared to the customers of the MVNO.
37. H3G may suspend or terminate an MVNO’s customer if the customer is using devices
or other equipment which is defective or illegal or non-compliant with international
technical standards, the customer is causing technical problems on the H3G Network,
the customer is suspected of fraudulent or unauthorised use or authentication of the
subscription is not possible. Prior to any suspension or termination, H3G will inform
the MVNO unless it is not expedient to do so in which case it will inform the MVNO
immediately thereafter.
38. H3G may request the MVNO to block a SIM card used contrary to the prohibited uses
above and the MVNO shall investigate such request and block the relevant SIM to the
extent the MVNO deems it so required, acting reasonably.
39. If either H3G or the MVNO suspects any kind of fraud or abuse which involves the
services offered by the MVNO under the wholesale access offer they shall inform each
other immediately and co-operate in good faith and use all appropriate means to iden-
tify, eliminate and the prevent the fraud or abuse as soon as feasible.
K. INTELLECTUAL PROPERTY AND BRANDING
40. All intellectual property rights which are owned by, or proprietary to, a party shall
remain the exclusive property of that party.
41. All intellectual property rights in the H3G marks and the H3G Network shall remain
the property of H3G. The MVNO shall not brand or promote its services under the
H3G brand.
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42. All intellectual property rights in the MVNO marks shall remain the property of the
MVNO.
L. COMPLIANCE WITH ALL APPLICABLE LAWS
43. Each party to the MVNO Agreement shall comply with all applicable laws, regula-
tions and rules applicable to its obligations under the MVNO Agreement, including for
the avoidance of doubt Austrian telecommunications laws.
M. LIMITATIONS OF LIABILITY AND WARRANTIES
44. Subject to the limitations set out in the MVNO Agreement, the liability of the parties
shall be governed by Austrian law. The parties shall only be liable for damages caused
by intentional misconduct (“Vorsatz”) or gross negligence (“grobe Fahrlässigkeit”).
Liability for negligence shall to the extent legally permitted be excluded. Neither par-
ty will be liable to the other, whether for negligence, breach of contract, misrepresen-
tation or otherwise for loss of profit or revenue, or indirect loss/damage or consequen-
tial loss/damage suffered by the other party whether or not foreseeable.
45. The MVNO Agreement shall contain standard representations and warranties regard-
ing the capacity and authority to enter into the Agreement, the holding of all necessary
permits, registrations, filings and licences and the compliance with applicable laws.
N. TERM AND TERMINATION
46. The term of the MVNO Agreement will be for an initial term of 3 years, with a right
for the MVNO to extend the term up to a date no later than the date 10 years from [in-
sert the Effective Date]. Provided that the term of any MVNO Agreement entered into
in 2022 shall not exceed a period of 2 years unless otherwise agreed between the par-
ties.
47. Each party will have the right to terminate the MVNO Agreement for material breach,
insolvency events and force majeure. It will be deemed to be a material breach if the
MVNO is 2 months or more late in paying any invoice.
48. H3G shall have a right to terminate the MVNO Agreement if (a) the MVNO is ac-
quired (directly or indirectly) by another MNO in Austria or (b) the MVNO holds
spectrum frequency licence(s) with respect to which it has achieved outdoor coverage
exceeding 10% of the Austria population or (c) the MVNO holds spectrum frequency
licence(s) which contain outdoor coverage obligations exceeding 10% of the Austrian
population. For this purpose, population coverage is defined in the same manner as
used in the coverage obligations contained in the existing spectrum licences for the re-
spective spectrum in Austria or if there is no defined method, then in the same manner
as set out in the Telekom-Control Commission’s decision of 20 November 2000, K
15e/00 (schedule IV, § 9).
49. On termination of the MVNO Agreement, H3G will use reasonable endeavours to
assist the MVNO to port or migrate its customers to the network of another mobile
network operator, provided that any costs related to such migration shall be borne by
the MVNO. If H3G exercises its right to terminate as contemplated in Sections N
48(b) and (c) above, H3G will continue to provide the MVNO with the wholesale ac-
cess services that it is providing as at the date of termination, and until such time as
the MVNO’s customers are ported or migrated to the network of another mobile net-
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work operator or its own network, up to a maximum period of twelve (12) months
from the date of termination. The terms and conditions of the MVNO Agreement will
continue to apply to the provision of such services during this post-termination period.
For the avoidance of doubt H3G’s obligations in Section A 3 would not apply during
the such period.
O. GOVERNING LAW AND JURISDICTION
50. The MVNO agreement shall be governed by the laws of Austria.
51. The competent court in Vienna, Austria, shall have sole and exclusive jurisdiction
over any disputes between the parties arising in connection with the execution of the
MVNO Agreement.
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APPENDIX A: CHARGES
1. H3G shall charge the MVNO for each Transaction Type submitted over the H3G
Network by, or to, an MVNO Customer, calculated in accordance with the terms and
conditions set out in this Appendix.
2. With respect to each Year of the MVNO Agreement (and subject to paragraph 8 be-
low):
(a) the Base Rates shall apply to all Transactions paid for in that Year up to (and
including) the Discount Threshold for that Year;
(b) the Discount Rates shall apply to all Transactions paid for in that Year in ex-
cess of the Discount Threshold up to (and including) the Discount Ceiling for
that Year; and
(c) thereafter, the Base Rates shall apply to all Transactions paid for in that Year
in excess of the Discount Ceiling.
3. There are two pricing options available to the MVNO with respect to packet switched
data Transactions: (i) fixed unit pricing (as set out in Tables 3 and 7 below, as applica-
ble) or (ii) tiered pricing (as set out in Tables 4 and 8 below, as applicable). The
MVNO must elect the charging option it wishes to be applied at the time it first enters
into an MVNO Agreement. The additional retail minus pricing option set out in para-
graph 19 below may be elected by the MVNO from time to time during the term of the
MVNO Agreement, subject to the terms and conditions set out therein.
4. For the purposes of this Appendix, the following capitalised words have the following
meanings:
(a) Base Rates: mean the rates set out in Tables 1 to 4 in paragraph 5 below;
(b) Discount Ceilings: mean the figures set out in column 3 of Table 9 in para-
graph 7 below;
(c) Discount Rates: mean the rates set out in Tables 5 to 8 in paragraph 6 below;
(d) Discount Thresholds: means the figures set out in column 2 of Table 9 in par-
agraph 7 below;
(e) Transaction: means (i) mobile originated or terminated circuit switched traffic
(i.e. voice, fax, video and circuit switched data) (ii) mobile originated or termi-
nated SMS (iii) or packet switched data (each being a “Transaction Type”);
and
(f) Year: means the applicable 12 month period, with Year 1 being the 12 month
period starting from the date of the commercial launch by the MVNO of retail
services in Austria over the H3G Network and Years 2 onwards being con-
strued accordingly.
5. The Base Rates are:
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Table 1: Circuit Switched
Transaction Type Billing Unit
Charge Rate per
Minute (€)
Charge Rate per
Second (€)
Mobile originated or terminated
circuit switched (i.e. voice, video,
fax and circuit switched data) incl.
calls made to emergency numbers
(112 etc.)
1 Second 0.01 0.000167
Table 2: SMS
Transaction Type Billing Unit Charge Rate (€)
Mobile originated or
terminated SMS
1 SMS 0.004
Table 3: Packet Switched Data - Fixed Unit Pricing
Transaction Type Billing Unit Charge Rate per MB (€)**
Data (inclu. MMS) up to
30 Mbit/sec*
1 kilobyte (rounded to the nearest
kilobyte)
0.002
*For services using UMTS, HSPA, HSDPA and LTE technologies, as well as GSM and GPRS tech-
nologies to the extent available under the H3G 2G & 2.5G roaming arrangements.
**The wholesale charge rate for higher speed data services will be calculated in accordance with par-
agraph 18 below.
Table 4: Packet Switched Data - Tiered Pricing
Volume Tier (MB) Transaction
Type
Billing
Unit
From To
Per MB Charge Rate (€)**
0 < 30 0.015
30 < 200 0.004
200 < 1000 0.003
1000 < 5000 0.0016
Data (inclu.
MMS) up to
30 Mbit/sec*
1 kilobyte
(rounded to
the nearest
KB)
5000 Upward 0.0011
*For services using UMTS, HSPA, HSDPA and LTE technologies, as well as GSM and GPRS tech-
nologies to the extent available under the H3G 2G & 2.5G roaming arrangements.
**The wholesale charge rates for higher speed data services will be calculated in accordance with par-
agraph 18 below.
6. The Discount Rates are:
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Table 5: Circuit Switched
Transaction Type Billing Unit
Charge Rate per
Minute (€)
Charge Rate per
Second (€)
Mobile originated or terminated
circuit switched (i.e. voice, video,
fax and circuit switched data) incl.
calls made to emergency numbers
(112 etc.)
1 Second 0.0085 0.0001416
Table 6: SMS
Transaction Type Billing Unit Charge Rate (€)
Mobile originated or
terminated SMS
1 SMS 0.0034
Table 7: Packet Switched Data - Fixed Unit Pricing
Transaction Type Billing Unit Charge Rate per MB (€)**
Data (inclu. MMS)
up to 30 Mbit/sec*
1 kilobyte (rounded to the nearest
kilobyte)
0.0017
*For services using UMTS, HSPA, HSDPA and LTE technologies, as well as GSM and GPRS tech-
nologies to the extent available under the H3G 2G & 2.5G roaming arrangements.
**The wholesale charge rate for higher speed data services will be calculated in accordance with par-
agraph 18 below.
Table 8: Packet Switched Data - Tiered Pricing
Volume Tier (MB) Transaction
Type
Billing
Unit
From To
Per MB Charge Rate (€)**
0 < 30 0.01275
30 < 200 0.0034
200 < 1000 0.00255
1000 < 5000 0.00136
Data (inclu.
MMS) up to
30 Mbit/sec*
1 kilobyte
(rounded to
the nearest
KB)
5000 Upward 0.000935
*For services using UMTS, HSPA, HSDPA and LTE technologies, as well as GSM and GPRS tech-
nologies to the extent available under the H3G 2G & 2.5G roaming arrangements.
**The wholesale charge rates for higher speed data services will be calculated in accordance with par-
agraph 18 below.
7. The Discount Thresholds and Discount Ceilings are:
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Table 9: Discount Thresholds and Discount Ceilings
Year Discount Threshold (€) Discount Ceiling (€)
Year 1 1,700,000 2,720,000
Year 2 5,000,000 8,000,000
Year 3 7,000,000 11,200,000
Year 4 9,000,000 14,400,000
8. The Discount Thresholds and Discount Ceilings are based on the total amounts (in
Euros) paid by the MVNO to H3G for the wholesale access services specified in sec-
tion A1(a) of the Reference Offer in the relevant Year (excluding units purchased in
accordance with the retail minus pricing in paragraph 18 below).
9. If an MVNO Agreement continues or is extended for more than 4 years, H3G will
negotiate in good faith with the MVNO to agree (before the end of Year 4) the Dis-
count Thresholds and Discount Ceilings for the Years in the remainder of the term of
the MVNO Agreement which shall not exceed a period of more than 10 years from
[insert Effective Date]. If the parties cannot agree on new thresholds, the following
Discount Thresholds and Discount Ceilings shall apply:
Table 10: Discount Thresholds and Discount Ceilings
Year Discount Threshold (€) Discount Ceiling (€)
Year 5 11,000,000 17,600,000
Year 6 12,500,000 20,000,000
Year 7 14,000,000 22,400,000
Year 8 15,000,000 24,000,000
Year 9 16,000,000 25,600,000
Year 10 16,500,000 26,400,000
Year 11 17,000,000 27,200,000
Year 12 17,500,000 28,000,000
Charging Principles Applicable to Circuit Switched Transactions
10. H3G shall charge the MVNO for each circuit switched transaction (originating and
terminating) submitted over the H3G Network by, or to, an MVNO customer.
11. The charge for each circuit switched transaction shall be calculated by multiplying the
applicable rate per second by the call duration. The call duration for each transaction is
the number of seconds from the time the call is answered until it is terminated. If the
duration of the call is a fraction of a second, it shall be rounded up or down as the case
may be (>=0.5 rounded to 1.0 and <0.5 rounded to 0.0).
12. A circuit switched transaction sent by one MVNO customer to another customer of the
same MVNO shall be charged as a single transaction.
Charging Principles Applicable to SMS Transactions
13. H3G shall charge the MVNO for each SMS message (originating and terminating)
submitted over the H3G Network by, or to, an MVNO customer, even if the SMS is
not successfully received by the recipient.
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14. An SMS sent by one MVNO customer to another customer of the same MVNO is
charged as a single SMS.
15. There is no charge for an SMS delivery report.
Charging Principles Applicable to Packet Switched Data Transactions
16. If an MVNO has elected the tiered pricing option for packet switched data Transac-
tions, H3G shall charge the MVNO on a per SIM basis, calculated by multiplying the
volume of data used by that SIM in the relevant calendar month (rounded to the near-
est KB) by the applicable charge rate. The applicable charge rate is the rate which cor-
responds to the volume tier (MB) in which that SIM’s monthly data volume falls.
17. H3G shall charge the MVNO for each MMS message (originating and terminating)
submitted over the H3G Network by, or to, an MVNO customer, even if the MMS is
not successfully received by the recipient as a packet switched data transaction.
18. With respect to the wholesale charge rates for higher speed data services (not less than
30 Mbit/s), the rates in tables 3, 4, 7 and 8 will apply to the data service offered by
H3G from time to time to its retail customers which has the second highest data
throughput speed (“Standard Data Service”). If H3G charges a premium to its retail
customers for directly comparable data-only services at a higher speed (“Premium Da-
ta Service”), then the wholesale charge rate for the comparable wholesale Premium
Data Service provided by H3G to the MVNO will be charged at a premium which will
be equivalent to the ratio of H3G's retail price for the Premium Data Service and the
Standard Data Service. For example, if the ‘up to 100 Mbps’ flat rate service is of-
fered by H3G to its retail customers at €49 per month and the second fastest compara-
ble product (‘up to 30 Mbps’) is charged at €24 per month then a premium of 204%
will be applied to the wholesale charge rates in tables 3, 4, 7 and 8 (both the fixed unit
pricing and tiered pricing) for the wholesale data service using ‘up to 100 Mbps.’
Additional Retail Minus Pricing Option for Packet Switched Data Transactions
19. The MVNO may elect a retail tariff which is offered by H3G to which retail minus
pricing will be applied, whatever the mobile network technology being used by H3G
to deliver the service to its customers from time to time (UMTS, HSPA, HSDPA and
LTE, as well as GSM and GPRS to the extent available under the H3G 2G and 2.5G
roaming arrangements). Retail minus pricing shall only be available for data access
SIM-only services (and shall not be available for other products or market develop-
ments such as NFC offerings, handset subsidies or content offerings). In this case,
H3G shall charge the MVNO for packet switched data Transactions at a 25% discount
on the retail price H3G charges its own customers under the relevant tariff. To ensure
accurate wholesale billing, the flat rated IMSIs of the MVNO will be separately identi-
fied. The election of retail minus pricing does not prevent the MVNO offering retail
tariffs to its customers based on the Base Rates or Discount Rates, as applicable.
However, in relation to the same customer, the MVNO may only apply either retail
minus pricing or per unit pricing (whether the Base Rates or the Discount Rates).
Units purchased in accordance with the retail pricing are not counted towards the Dis-
count Thresholds and Discount Ceilings above.
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ANNEX IV
F 1/12
Beschluss der Telekom-Control-Kommission (TKK) vom 22.10.2012
betreffend Förderung eines Neueinsteigers in Zusammenhang mit der
Übernahme von Orange durch H3G
Wird die Übernahme von Orange durch H3G genehmigt, würden aus Sicht
der TKK folgende Maßnahmen zur Stärkung des Wettbewerbs ergriffen
werden:
- Die TKK ist – vorbehaltlich der notwendigen Zustimmungen des BMVIT -
unter den nachfolgend angeführten Selbstverpflichtungen der H3G bereit,
Spektrum im Bereich 800 MHz für einen etwaigen Neueinsteiger im Rahmen
der Vergabe des Jahres 2013 (große Auktion) bereitzuhalten bzw. zu reser-
vieren. Ziel der TKK ist es dabei, einem Neueinsteiger durch die Kombinati-
on von zur Auktion gelangendem Flächenspektrum in Verbindung mit Kapa-
zitätsspektrum der H3G und nach Maßgabe der unten genannten weiteren
Bedingungen, den Markteintritt zu ermöglichen. Folgende Voraussetzungen
sind aus Sicht der TKK erforderlich:
• Seitens der TKK wird 800 MHz Spektrum für einen erfolgreichen
Neueinsteiger nur dann reserviert, wenn die Kopplung mit abzu-
gebenden 2,6 GHz Spektrum sichergestellt ist.
• Die Selbstverpflichtung zur Abgabe von Frequenzen (mind. 2 x 10
MHz im 2,6 GHz Bereich), in einer ersten Phase ggf. durch direk-
ten Verkauf der H3G an ein drittes, wettbewerblich von bestehen-
den österreichischen MNOs unabhängiges Unternehmen, das die
Voraussetzungen für die Teilnahme an der Auktion erfüllt und sich
verpflichtet aktiv an der Frequenzauktion teilzunehmen.
• Eine Selbstverpflichtung zur Abgabe von für eigene Zwecke nicht
benötigten Standorten bzw. die bevorzugte Ermöglichung von Kol-
lokation an/für den Neueinsteiger (einschließlich der Anbindung
der abgegebenen Standorte) nach dessen Wahl.
• Eine Selbstverpflichtung zum Angebot von National Roaming
Diensten für den Neueinsteiger, für die Dauer von 6 Jahren, zu
Konditionen wie sie dem vorliegenden MVNO-Angebot entspre-
chen, allerdings ohne die gegebene Einschränkung hinsichtlich
Pop-Coverage eines MNOs.
- Die TKK stellt sicher, dass, wenn kein Neueinsteiger aus dem Verkauf
und der damit verbundenen Vergabe von Spektrum hervorgeht, die oben
167
genannten Frequenzen im 2,6 GHz Bereich bei der H3G bleiben da die Nut-
zungsrechte auch formal nicht an die TKK zurückfallen.
- Die TKK würde für einen Neueinsteiger langfristig vergleichbare Versor-
gungsauflagen für alle Frequenzbänder vorsehen, die zur Vergabe gelan-
gen. Längerfristig sollen für alle Betreiber analoge Versorgungsverpflichtun-
gen gelten. Mit dieser Regelung beabsichtigt die TKK einerseits dem Um-
stand Rechnung zu tragen, dass der Neueinsteiger einen entsprechenden
roll-out vornimmt und andererseits auch dem Wachstumspfad eines Neu-
einsteigers entsprochen wird.
Wien, am 22.10.2012
Die Vorsitzende
Dr. Elfriede Solé
