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
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
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
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
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
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.
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
- 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