Active mobile sharing raises a number of competition-related concerns. The access that operators have to each other’s networks provides them with access to confidential information about each other’s costs, operations, technology, and other key data. Sharing may therefore provide opportunities for collusion on pricing, service packages, and network development.
Even without collusion, some forms of sharing such as national roaming may restrict competition by neutralizing key competition parameters such as coverage, call quality and transmission rates. This neutralization occurs because roaming operators are restricted by the coverage, network quality and transmission speeds available on the visited network, which are a function of the commercial choices made by the visited operator. Regulators may be concerned at the resulting uniformity and lack of market differentiation. These types of concerns were raised by the European Commission when it evaluated 3G network sharing arrangements between T-Mobile and O2 in Germany and the UK. Although the European Commission restricted national roaming arrangements due to competition-related concerns, this decision was subsequently overturned by the European Court of First Instance (CFI). For more details about the European Commission’s evaluation of national roaming in the aforementioned cases, please see that attached Practice Note entitled “The European Commission’s Review of National Roaming Agreements”.
Sharing may also hinder network roll-out since operators may find that it is cheaper to share infrastructure and provide services in the same geographic areas as their competitors than to roll-out their network to under-served areas. Insofar as sharing increases collaboration and reduces competition in the core and access levels of the network, sharing also reduces the incentive to innovate. Dynamic efficiency may suffer as a result.
Box 1: Ofcom’s concerns regarding the impact of sharing on competition
“Network sharing could also have undesirable consequences for competition. For example, [mobile network operators] could collaborate on network development and gain information about each other’s costs and plans, which may have a chilling effect on competition in the retail market. Dynamic efficiency may also be lower with fewer networks able to provide high quality mobile broadband services. End-to-end competition, i.e. at both the network and service level, could lead to greater innovation, which could bring significant benefits for consumers. We note that the competition concerns would be amplified if the 900 MHz operators were themselves to decide to share a single UMTS 900 network in response to the actions of their competitors. While it is difficult to quantify the potential impact of these effects, Ofcom’s initial view is that there is a significant risk that both competitive intensity and innovation in mobile broadband services would be weakened, with potentially serious impacts on consumer welfare.”
Source: Ofcom, Application of spectrum liberalization and trading to the mobile sector (20 September, 2007). This public consultation document is available at: www.ofcom.org.uk/consult/condocs/liberalisation/liberalisation.pdf.
While the collaborative aspects of sharing pose concerns, sharing may also be used by operators, particularly those with significant market power (SMP), to undermine their competitors. Refusals to grant access to network infrastructure, delays in responding to requests for site sharing, poor service quality, and price gouging can sabotage initiatives to promote sharing where it would otherwise be appropriate. Vertically integrated operators in particular have incentives to delay access and service requests, reduce service quality, and over-charge operators who compete in the same downstream markets as they do.
With these concerns in mind, there are a number of ex ante measures that regulators may to avoid anti-competitive outcomes. These measures include the following:
- Impose geographic coverage requirements.
- Set standards for quality of service indicators and time frames.
- Require the publication of RIOs
- Restrict exchange of confidential information.
- Time limits: allow sharing in certain areas, for a certain amount of time. This allows for benefit of sharing for reducing costs so that can help with roll-out, but phases it out as markets grow.
- Functional separation.
Although sharing arrangements raise competition-related concerns, there may also be some competition-related benefits associated with these arrangements. Network sharing agreements may help operators to offer services to more people in more geographic regions. The operators can then compete based on brand, price and customer service. This applies in particular to rural and remote areas. One way to balance the concerns about mobile network sharing with the benefits associated with sharing arrangements is to distinguish between urban and rural areas when judging network-sharing agreements. Brazilian regulator ANATEL, for example, permitted mobile network sharing in communities with less than 30,000 inhabitants, but not in other, larger communities, when it issued licences for the provision of 3G mobile services in 2008. Another option is to allow sharing for a period of time until operators have acquired a substantial customer base in rural areas. Subsequently, the operators may be required to deploy their own networks and eliminate or reduce their reliance on roaming.
Regulators need a thorough awareness of the competitive situation in the market when judging network-sharing agreements. Such agreements should not affect important competition parameters, such as price and service packages. Cooperating operators should not be allowed to exchange commercially sensitive information that may influence their future competitive behaviour. Where regulators impose conditions or limitations (such as requiring part of the infrastructure to be functionally separate), they may wish to impose only those obligations that are strictly necessary to preserve sustainable competition.