Mobile Merger: Is Three Enough?

 

Mobile Merger: Is Three Enough?

 

A merger has been announced between Vodafone and the owner of Three UK.

 

The firms plan to merge their UK-based operations.  The transaction would if completed give them around 27 million customers making it the biggest mobile network in the UK behind Virgin Media O2.

 

The transaction has yet to be approved by regulators, and it can be expected that the Competition and Markets Authority will scrutinise it closely.

 

The merger revisits the question of how many mobile operators are needed to maintain competitive markets.  The UK has a history of aggressive mobile competition prompting commentators to speculate that if a four-to-three merger cannot be approved here, then the hopes for similar consolidation in the mobile sector may now be more limited.  There are however already precedents for allowing consolidation from four to three players in other countries, for example the merger between KPN and Telfort in the Netherlands. 

 

The CMA is likely to look at the impact on consumer choice and prices, as well as the implications for development of future infrastructure, including 5G. A further area concerns the impact on mobile virtual network operators, or “MVNOs” to the extent that the transaction would reduce the number of operators effectively willing to host MVNOs on their networks.

 

It’s been argued that the merger would in fact be efficiency-enhancing leading to much needed investment in 5G in the sector.  In the current economic climate, it is perhaps understandable that merging parties would lay claim to such efficiencies to support a more moderated view of a merger between the larger players.  It is also understandable that regulatory authorities will continue to want to be assured that such efficiencies are clearly substantiated by robust economic evidence and argument.

CMA increases the value of informant rewards

 

CMA increases the value of informant rewards

The Competition and Markets Authority (CMA) has increased the maximum value of financial rewards that it will pay to informants who provide the CMA with information about a cartel from £100,000 to £250,000.

In 2008 the Office of Fair Trading introduced a policy of paying financial incentives of up to £100,000 to people who provide information about illegal cartels.  The CMA continued this policy.

The grant of an award and its amount is at the discretion of the CMA. The CMA has stated that it will pay a reward if the information concerned is significant in nature and leads to enforcement action by the CMA against those involved in the cartel. 

When considering the amount of the reward the CMA will have regard to factors such as the value of the information, the amount of harm that the information has helped to stop, and the effort and risk taken by the informant in providing the information.

Under the CMA’s leniency policy a company or individual which confesses its involvement in a cartel can gain complete civil and criminal immunity from sanctions provided certain conditions are met.  The CMA does not consider that an individual in such circumstances should ordinarily also gain a financial reward.

 

https://www.gov.uk/government/news/blowing-the-whistle-on-cartels

European Commission conditionally approves Microsoft’s acquisition of Blizzard

 

European Commission conditionally approves Microsoft’s acquisition of Blizzard

The European Commission has approved the acquisition of Activision Blizzard by Microsoft, subject to conditions.

The companies develop and publish games for PCs, consoles, and mobile devices and distribute games for PCs. Microsoft distributes games for consoles and offers the Xbox console.

Following its Phase II investigation, the Commission found that Microsoft would not be able to harm rival consoles and rival multi-game subscription services.

The Commission did, however, conclude that post-merger, there was a risk of foreclosure if Microsoft made Activision's games exclusive to its own cloud game streaming service and withheld them from rival cloud game streaming providers.  This presented a further risk that Microsoft could also strengthen the position of Windows in the market for PC operating systems.

The Commission's decision was perhaps predictable when viewed against a more finely tuned appraisal of cloud gaming streaming ecosystem competition, and what it describes as “comprehensive licensing” commitments.

It is not an unconditional clearance.  The Commission has accepted 10-year licensing commitments to address the competition concerns identified in the market for the distribution of PC and console games via cloud game streaming services.

Microsoft has agreed to grant a free license to consumers in the EEA that would allow them to stream, via any cloud game streaming services of their choice, all current and future Activision Blizzard PC and console games for which they have a license. A corresponding free license will be granted to cloud game streaming service providers to allow EEA-based gamers to stream any Activision Blizzard's PC and console games.

The clearance under the EU merger regulation is in stark contrast to the CMA’s outright prohibition of the merger in April.  Meanwhile the FTC has a pending challenge to the merger in the USA.

While the CMA and the European Commission apply very similar analytical frameworks, their views on the impacts on their own markets are coloured by the results of the market test and impacts on competition they consider to be important.  The Commission found that even without this transaction, Activision would not have made its games available for multi-game subscription services.

The Commission’s decision is unlikely to stop the CMA’s current hawkish enforcement stance in merger control which shows it is prepared to tread its own path.

Whether the UK decision will scupper the whole deal remains to be seen as an appeal is understood to be underway. However, the parties and their advisers will no doubt be taking a long hard look at the global implications of different approaches of the merger authorities to a deal with global and complex impacts.

https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2705

Competition and Markets Authority review of AI foundation models

 

Competition and Markets Authority review of AI foundation models

The CMA has launched a review of Artificial Intelligence foundation models to better understand the competition and consumer protection implications.

Over the past two decades, the field of artificial intelligence or “AI” has been reshaping virtually every industry founded on the idea that machines could be used to simulate human intelligence through so-called “machine learning” or “ML”.  This evolution brings with it a number of benefits, including improvements in economic outcomes, enhanced human decision-making, increased levels of productivity and potential solutions for complex and pressing economic and social problems.  At the same time, AI and ML present a number of potential challenges that will need to be confronted if the full benefits are to be realised.  Not least, there is a challenge in ensuring that policy, laws and regulations governing systems enabled by AI are relevant, adequate and proportionate.

The CMA observes that AI foundation models have the potential to transform much of what individuals and businesses do.

In its March 2023 White Paper on AI regulation, the government asked regulators, including the CMA to consider how to support the innovative development of AI.

The CMA's initial review will examine how the competitive markets for foundation models and their use could evolve.

It will also examine the opportunities and risks for competition and consumer protection, including the impact on competition in other markets.

The CMA invites comments by 2 June 2023.

The CMA expects publish a short report setting out its findings in early September 2023.

https://www.gov.uk/government/news/cma-launches-initial-review-of-artificial-intelligence-models

CMA blocks Microsoft’s acquisition of Activision – a tale of the unexpected

 

CMA blocks Microsoft’s acquisition of Activision – a tale of the unexpected

The UK’s Competition and Markets Authority (CMA) has prohibited Microsoft’s $68.7 billion purchase of Activision Blizzard.

The CMA has found that the transaction may not be expected to result in competition concerns in console gaming services in the UK, but that it may be expected to result in a substantial lessening of competition in cloud gaming services in the UK.

The CMA has decided to block the deal instead of accepting Microsoft’s proposed remedies, stating “significant shortcomings”. According to the CMA, the rejected remedies would be tantamount to requiring the agency to regulate what is the “growing and fast-moving” worldwide cloud gaming sector. Microsoft had proposed to license a set of Activision games to competitors for use in cloud gaming services, but the CMA rejected the proposal. This was mainly because it did not cover different cloud gaming business models and was not fully open to rivals who might want to offer different versions of games other than on the Windows operating system.

This is the second ever CMA prohibition of an acquisition by a major tech giant, following the order to Meta to unwind its acquisition of Giphy.

In the course of the second stage review, the CMA retreated from its initial view that only a divestiture could allay its concerns and focused increasingly on the cloud gaming sector. However the remedy proposals did not go far enough, and the CMA has opposed replacing the pre-merger competitive situation with what it views as ineffective regulation in a dynamic market.

The ban comes about a month before the European Commission is to issue its own findings in its second phase probe. The Commission is currently market testing proposed commitments which also involve licensing. However, other global antitrust authorities, including in South Africa, Brazil, Chile, China and Japan have already cleared the deal, mainly based on licensing commitments.

But this not may be the end of the transaction. Late revisions to the CMA’s provisional findings could form the basis for an appeal.

https://www.gov.uk/government/news/microsoft-activision-deal-prevented-to-protect-innovation-and-choice-in-cloud-gaming

 

Competition Appeal Tribunal will jointly case manage collective actions in maritime carriers cartel action

 

Competition Appeal Tribunal will jointly case manage collective actions in maritime carriers cartel action

 

In a novel judgment on case management, the Competition Appeal Tribunal has published an order in the Mark McLaren Class Representative Limited v MOL (Europe Africa) Ltd and others collective damages action. The CAT has ruled that the McLaren proceedings will be jointly managed as one case together with Volkswagen’s standalone damages action.

The defendants in the claim were addressees of the European Commission's February 2018 decision, under the settlement procedure, establishing a cartel between maritime car carriers.

At this stage the CAT has not yet ruled that the cases raise ubiquitous matters relating to overcharge and pass-on – the overlapping elements of the claims. The CAT noted there was a real likelihood that an Umbrella Proceedings Order would be needed. Smith J said that the respective claimants “inevitably have to advance different and almost certainly inconsistent cases” as to who paid the unlawful overcharge.

The order sets out a timetable for McLaren class representatives and Volkswagen claimants to file and serve relevant documents, witness statements, expert reports and evidence to parties to both proceedings.

The order lists the main trial in the McLaren proceedings for 2025, with a provisional time estimate of 10 weeks, and main trial in the Volkswagen proceedings for 2026.

The ruling shows that the CAT is trying to use its case management powers to avoid inconsistent decisions in cases involving overlapping issues.

https://www.catribunal.org.uk/sites/cat/files/2023-04/2023.04.06_1339_1528%28T%29_Order%20of%20the%20Tribunal%20%28Directions%20to%20trial%29.pdf

European Commission Call for Evidence on revised abuse of dominance guidance

 

European Commission Call for Evidence on revised abuse of dominance guidance

The European Commission is proposing to issue new guidance on the application of Article 102 TFEU to exclusionary abuses of dominance.  The Commission has issued a call for evidence to assist in its work and amended its 2008 guidance on enforcement priorities concerning exclusionary abuses (“2008 guidance”).

The Commission intends that the new guidance will increase legal certainty and bring the guidance in line with recent practice and decisions of the EU Courts.

The Commission seeks evidence by 24 April 2023 with a view to adopting new guidance in 2025.

Prior to finalisation of the new guidance, the amendments to the 2008 guidance clarify that in markets characterised by in particular network effects the Commission may investigate practices by a dominant company which are capable of foreclosing competitors that are not (yet) as efficient as the dominant company.

Furthermore the Commission may investigate cases where a dominant firm imposes unfair access conditions to a particular input even if there is no evidence that such input is indispensable to compete in a relevant market.

The Commission also clarifies that margin squeeze is a separate form of abuse from refusal to supply.

The Commission has also published a DG Competition Policy Brief titled “A dynamic and workable effects-based approach to Article 102 TFEU”.

The amendments are the first major policy statement change in the area of abuse of dominance since the Commission’s 2008 guidance. However, that document was always an unusual statement leading to some ambivalence as to the legal position.  The Commission set out an avowedly economics-based test for its enforcement priorities without this actually being part of the law. It is hoped that the revised guidance as the Commission intends will lead to a less dogmatic and strict application of the tests on anticompetitive foreclosure and as efficient competitor.

https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1911