ANACOM has submitted to the Competition Authority (AdC) its opinion on the concentration operation consisting of the acquisition by Vodafone Portugal of sole control over Cabonitel, which in turn wholly owns Nowo.
The issued opinion refers to the operation as proposed and assesses its impact on the electronic communications market. After a detailed analysis, ANACOM considers that there is sufficient evidence that this operation, should it take place as notified, could produce several harmful effects, whereby an in-depth assessment by AdC regarding the damage that the operation is likely to cause is fully justified. In this context, any approval of the merger should be subject to commitments that address such harmful effects.
Without prejudice to ANACOM’s analysis of any commitments which may be proposed by the notifying party, this Authority considers that they should include the return of at least the spectrum held by Nowo which Vodafone could not bid for in the 2021 Auction, and the acceptance of obligations to which Vodafone would be bound had it acquired 100 MHz of spectrum in the 3.6 GHz band in the 2021 Auction. Some type of commitment associated with the fixed network may also be justified in order to avoid a reduction of capacity in the market.
Some of the effects that could result from this concentration, should it take place as notified, would include the following:
- Possible increases of Vodafone’s prices, in addition, specific price increases for Nowo customers
Nowo is currently the provider that has the lowest prices on a substantial number of fixed and mobile services and offers. Given that Vodafone’s prices are in many cases higher than Nowo’s, this operation may result in price increases for Vodafone and also for Nowo customers (after the respective contractually defined loyalty period). In areas where Nowo operates, Vodafone customers would no longer have a lower priced operator as an alternative, which would weaken competitive pressure and, as such, would be likely to lead to a price increase. For Nowo customers, should they wish to switch operator following a price increase, there would not be an alternative with similar prices to Nowo’s current prices.
- Increased concentration in the national market and in some sub-national geographic markets
If the relevant markets are considered to be of national geographic scope, it can be observed that the concentration results in a small increase in Vodafone’s access shares, reaching a maximum share of 31.8%, which does not exceed the 40% threshold above which a dominant position could exist.
However, concentration will increase in nine municipalities of the country and Vodafone’s market share will exceed 40%. Although this effect is mitigated by the fact that Vodafone and Nowo’s main competitors have high coverage in these municipalities, such effect should be subject to an investigation by AdC, in particular if there is sufficient evidence that customers would likely switch from Vodafone to Nowo in a scenario of price increases by Vodafone.
- Immediate reduction of competition and rivalry in retail markets for fixed and mobile electronic communications services
In a market with high entry barriers, high concentration, homogeneity of offers, low tariff diversification, loyalty periods that create significant barriers to switching and high prices, the removal of a competitor with competitive prices, Nowo, reinforces a symmetrical market structure. This could create immediate risks of a balance between operators with a lower level of competition.
- Reduction of the potential competition in retail markets for fixed and mobile electronic communications services
Nowo already offers convergent bundled services, including mobile services and, following the 2021 Auction, it had access to resources that could strengthen its supply of mobile services, either on a stand-alone basis or integrated into service packages under more attractive conditions, to reach a wider range of customers. Against this background, Nowo could foster a stronger competitive balance on this market not only in terms of pricing and innovation, but also in terms of increasing the level of heterogeneity of offers and bringing them closer to users’ preferences. In this context, the concentration represents the removal of a potential threat to a market structure that presents relevant risks of remaining in a stable balance with less competition than would exist if Nowo remained in the market as an autonomous body.
Nowo enjoys significant installed capacity, with a nationwide coverage of over 15% and some areas even exceeding Vodafone’s coverage. Therefore, in terms of potential competition, the effect of this operation on the competitive dynamics in these markets is greater than the effect that the market share analysis would suggest.
- Reduction in the effectiveness of measures to promote competition introduced by ANACOM in the 2021 Auction, also affecting future auctions
With the takeover of Cabonitel, Vodafone would gain control over spectrum held by Nowo, which it was not allowed by ANACOM to bid for in the 2021 Auction. In addition, it would have less demanding network development obligations than it would otherwise be subject to if it had obtained part of that spectrum in the 2021 Auction. This undermines the objectives and measures which ANACOM introduced in the 2021 Auction. In addition, approval of the concentration operation, as notified, could also jeopardise the credibility of rules that may be defined in future auctions, and also distort companies’ decisions in these auctions.
- Possible input foreclosure
The acquisition of control over spectrum that Vodafone was unable to acquire in the 2021 Auction may prevent spectrum from being available to new operations, or operations other than those of the main operators, hindering or reducing the development of competition in the mobile communications market in Portugal by creating restrictions on the emergence and/or development of competitors.
Such an effect is likely insofar as the evidence available to ANACOM suggests that the intrinsic value of spectrum concerned, for Vodafone, is significantly lower than the strategic value that may result from denying access to the spectrum input to one or more operators with which it competes in downstream markets, allowing it, for example, to charge higher prices, or to invest and innovate less, in both cases being able to obtain higher economic profits, to the detriment of users.
• Possible customer foreclosure
Nowo’s existing customers could be particularly relevant to foster a successful entry, or expansion, on the national market. To that extent, it is not excluded that the concentration at stake, in so far as it denies those customers to a new entrant or to an operation other than those of the incumbents, may lead to what is known as customer foreclosure.
Finally, it should also be noted that the opinion now submitted to AdC is without prejudice to the exercise by ANACOM of the powers entrusted to it.
