At risk of oversharing: considerations for mobile network sharing agreements in the 5G era

As telcos throughout Europe gear up for the rollout of 5G across the continent, the decision, and accompanying remarks by the Commission on wider network sharing issues, serves as a timely reminder of the potential challenges for telcos contemplating whether to pursue consolidation through mergers or structural JVs or co-operation through the use of network sharing agreements (NSAs).

While it was initially reported that the parties had hoped not to have to notify the TIM/Vodafone/INWIT JV to the Commission (on the basis that INWIT would only serve TIM and Vodafone and would not therefore be a ‘full function’ joint venture), seemingly after discussions with the Commission, the parties ultimately notified the deal in January this year and the Commission launched its phase 1 investigation. The clearance itself was not remarkable. The Commission’s investigation revealed concerns about a reduction in competition for the rental of space on towers for certain municipalities and the potential for INWIT to shut out competing telcos. Ultimately, the Commission was satisfied that remedies offered by the parties (including a suite of commitments relating to marketing and making available space on 4,000 towers across Italy to other MNOs and new entrants) would serve to preserve current and future competition.

Perhaps more interesting is the context to the merger investigation. The joint venture takes place against the backdrop of wider network co-operation between the two operators, aimed at accelerating the rollout of 5G in Italy (TIM and Vodafone plan to extend existing ‘passive’ network sharing arrangements to the whole of Italy, and to share the ‘active’ infrastructure of their 2G, 4G and 5G networks in certain areas). While these co-operation agreements were not assessed as part of the merger control process, the Commission’s press release also, unusually, appears to give TIM and Vodafone the green light to proceed with these plans from an antitrust perspective, albeit in a scaleddown form and subject to on-going monitoring by the Commission. This signals an evolution in the Commission’s approach. The Commission does not issue formal ‘comfort letters’ to parties considering co-operative agreements. However, Commissioner Vestager has recently commented that the Commission is increasingly prepared to “give informal guidance when it’s needed – in new or unclear situations.”

From a policy perspective, the Commission’s decisional practice in mergers between telcos in the past suggests that NSAs should be welcomed: various decisions (eg H3G Italy/WIND) have made clear that the Commission considers merging parties can achieve efficiency gains through measures which fall short of a structural merger or joint venture, and hence dismissed parties’ arguments regarding the benefits of consolidation. In particular, the Commission has frequently assessed these mergers in the context of a hypothetical counterfactual where the merging parties enter into an NSA (even in light of evidence that this would not be a viable commercial alternative). This issue was also central in the Commission’s decision to block the H3G UK/Telefónica UK merger in 2016 which was appealed before the General Court with the judgment expected imminently. In this context, it is perhaps unsurprising that the Commission was willing to look favourably on the envisaged cooperation once particular issues had been addressed. On the other hand, in antitrust proceedings the Commission, and other national authorities, have of late been increasingly interventionist against NSAs (which, due to their nonstructural
nature are not reviewed under the merger control regime) – the Commission’s investigation in the Czech Republic and the Belgian authority’s investigation in that jurisdiction being recent, high-profile examples. The Commission appears to attempt to navigate these conflicting stances on NSAs; although it would no doubt point out that each case turns on its specific facts.

Overall, it would be wrong to see the TIM/Vodafone co-operation as a fundamental shift in the Commission’s approach. As the Commission itself points out, Italy is one of the least concentrated mobile markets in the EU (with five mobile network operators) and the co-operation between the parties is subject to certain limits. However, in terms of guidance for future transactions, disappointingly, the Commission did not use the opportunity to clarify its position on NSAs beyond the usual emphasis that the benefits of co-operation need to be balanced with their impact on competition on a ‘case-by-case’ basis. Nonetheless, the fact that the cooperation was limited only to rural and smaller, urban areas (seemingly to a greater extent than initially proposed after consultation with the Commission) could be seen as an indication of the direction of travel – ie that the Commission will seek to preserve competition in densely populated areas while recognising a stronger efficiency case exists in other areas, including rural areas (in this context, it is interesting to note the recently announced – and government encouraged – collaboration between UK MNOs to develop a “Shared Rural Network”). Similarly, the fact that the Commission seemingly pushed the parties to notify the transaction after their initial reluctance shows that the Commission is watching this space with intent.

The Commission has regularly stated, including in its press release, that the successful rollout of 5G networks is a “key priority”. On 13 March, the UK’s telecommunications regulator, Ofcom, finalised its rules for the upcoming auction for 700 MHz and 3.6-3.8GHz spectrum used for 5G services. For telcos considering either consolidation or co-operation to ensure the bill for rolling out 5G across Europe (estimated at anywhere up to EUR500bn) does not undermine their commercial viability, this case provides a useful indication of the stance that will be taken by Commissioner Vestager – in her dual role as competition enforcer and digital policy maker – to ensure that 5G is a success for all stakeholders, not least European consumers.