Affected market: Telecommunications
The OFT’s decision on reference under section 33 given on 15 June 2006. Full text published 28 June 2006.
AT&T Inc (AT&T) is a US telecommunications company which offers domestic and international voice, data and internet-related services to residential and business customers around the world. It owns 60 per cent of the wireless telecommunications provider, Cingular Wireless LLC (Cingular).
BellSouth Corporation (BellSouth) is a US telecommunications company offering domestic local and long distance voice, data and internet-related services. It also offers directory advertising and publishing services. BellSouth owns 40 per cent of Cingular.
Cingular, a joint venture company, provides mobile wireless telecommunication services to US customers as well as mobile international roaming services to other mobile network operators (MNOs) around the world.
Pursuant to the Agreement and Plan of Merger dated March 4 2006, AT&T will acquire full control of BellSouth.
The transaction was notified to the OFT by informal submission and the administrative deadline is 30 June 2006.
As a result of this transaction AT&T and BellSouth will cease to be distinct (see [Note 1]). The OFT believes that the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met in relation to the supply of international wholesale roaming services to UK MNOs. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.
The parties overlap in the UK in relation to the supply of wholesale international roaming services to other MNOs in the UK via Cingular, which they jointly own.
Wholesale international roaming services are provided by a domestic MNO to a foreign MNO. These services allow subscribers (i.e. the end mobile telephone users) to make and receive calls and SMS messages when they are abroad.
The European Regulators Group (ERG) of National Regulatory Authorities (see [Note 2]) last year undertook preliminary analysis on market definition and assessment of market power for wholesale international roaming within the EU (see [Note 3]). The ERG considered that the relevant product market would likely be all roaming traffic generated by subscribers to all foreign MNOs within that country. The ERG considered that this would include voice and SMS messaging with both 2G and 3G technology, but call termination services would generally not be included in the relevant product market (see [Note 4]).
The European Commission (Commission) reached a similar conclusion on product market definition in relation to the merger between Telefonica SA (Telefonica) and O2 plc (O2) (see [Note 5]), where the Commission decided that the relevant market for wholesale international roaming services was roaming services provided by all MNOs at a national level (see [Note 6]).
To ensure the best possible coverage for their subscribers while travelling in the USA, UK MNOs have wholesale international roaming agreements with the two main suppliers in the US - Cingular and T-Mobile (as no one provider may cover the whole of the US) (see [Note 7]). Although UK MNOs steer their subscribers to their preferred US provider, subscribers themselves have the option of choosing a US MNO by making selections on their handsets. Information from four of the major UK MNOs shows the proportion of their subscribers who use the non-preferred US MNO when in the US varies from less than 5 per cent to up to 45 per cent (see [Note 8]).
In addition, UK MNOs negotiate the best possible deal with US MNOs and their preferred US provider may change from one agreement period to the next. Demand side substitution therefore occurs.
Following from the above, the OFT has analysed the proposed merger with reference to all wholesale international roaming services supplied by all US providers.
The ERG and the Commission in Telefonica / O2 both concluded that the geographic market for wholesale international roaming services was national as authorisation to provide mobile telephony services is given on a national basis and wholesale contracts can only be formed with companies who are nationally licensed. The parties agreed with this definition.
Following from the above, the OFT has analysed the proposed merger with reference to wholesale international roaming services to UK MNOs provided throughout the USA.
Cingular provides around 28-40 per cent of US wholesale international roaming services to UK MNOs. T-Mobile provides almost all of the remainder (Sprint Nextel Corp. accounts for a very small share of supply) (see [Note 9]). Some UK MNOs pay standard inter-operator tariffs to Cingular while some have negotiated lower tariffs.
Although AT&T will increase its ownership of Cingular from 60 per cent to 100 per cent, Cingular as a whole will not increase its share of supply of international roaming services to UK MNOs as a result of the merger.
AT&T’s increased ownership and control of Cingular may increase its incentive to raise prices. However, as there is no change in the structure of the market resulting from the merger, AT&T will not have an increased ability to raise prices.
THIRD PARTY VIEWS
None of the UK customers who responded to the OFT’s investigation had any concerns about the proposed merger. One third party told the OFT that it was concerned that AT&T could leverage its position in international roaming services to gain an advantage in fixed line related services by controlling access to fixed local, national and/or international networks. However, that third party was not concerned about the impact of the merger on its UK customer base.
The only UK overlap between the parties is in wholesale international roaming services provided to UK MNOs by Cingular.
From a UK perspective the proposed merger does not present any horizontal concerns because it does not change the structure of US wholesale international roaming services.
Therefore, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within any market or markets in the UK.
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.
- Cingular provides wholesale international roaming services to UK customers. Although AT&T currently owns 60 per cent of Cingular, the company is managed by Cingular Wireless Corp. in which AT&T and BellSouth each has a 50 per cent ownership interest.
- The ERG comprises the national regulatory authorities of the 25 EU Member States. The four additional EEA states and the four accession states also participate in ERG meetings.
- ERG Common Position on the Coordinated Analysis of the Markets for Wholesale International Roaming, ERG (05) 20Rev1.
- The ERG paper was intended to form a common framework for national authorities to use when undertaking their own analysis on international roaming services, and not be a replacement for such analysis.
- Case No. COMP/M.4035 - Telefonica / O2, 10 January 2006.
- In the past, the Commission has considered that individual networks constituted separate product markets for wholesale international roaming services. However, technological advancements which now allow MNOs to steer their subscribers to a preferred network when the subscribers use their mobile phones abroad, combined with MNOs having multiple agreements with foreign MNOs, means that home country MNOs can now easily switch their custom between foreign MNOs within a particular country in response to price changes. This has led the Commission to conclude that the product market should include all MNOs offering wholesale international roaming services within any particular country.
- The parties told the OFT that Verizon Wireless and Sprint Nextel Corporation also offer wholesale international roaming services.
- The 5-45 per cent figure provided includes instances where subscribers have chosen a different MNO as well as instances where the UK MNO's preferred provider did not cover some areas and so a different MNO was used.
- This may be because Spirit Nextel's network is not compatible with UK phones which use GSM technology. Spirit Nextel and Verizon Wireless use CDMA technology.