24 September 2012

Hutchison 3G Austria

"Instead of opposing the merger of the two smallest operators in Austria, the Commission should allow it to proceed and facilitate the entry of new, competitive MVNO players in the Austrian market". Canning Fok, Group Managing Director, Hutchison Whampoa Limited

As anticipated last week, the Commission has now issued a Statement of Objections with respect to H3G's acquisition of Orange Austria. We are analysing the Statement and will be responding to the Commission's objections.

In our view, the approach taken by the Commission in this case is wrong and fails to sufficiently reflect the market realities in Austria.

• The Commission's assumption that a reduction in the number of operators in Austria from 4 to 3 will materially reduce competition is ill-founded. H3G has every incentive to continue to compete aggressively as the unquestioned challenger in the market, as it has since launching its business in Austria and elsewhere in Europe.



• While we understand that the Commission may have serious concerns about the reduction from 4 to 3 operators in much larger markets such as Germany, Spain or the UK, it is wrong to apply this logic in a much smaller market such as Austria. With a population of 8 million people, scale and satisfactory returns on network investments are difficult to achieve, particularly for a new entrant challenger such as H3G.



• It is also unprecedented to engage in a Phase 2 extensive scrutiny of a merger involving the two smallest operators in a market with a combined market share of only 22%.



• Post-merger, we are aiming to achieve a market share of 30% by 2015. The merger will give H3G the means and scale it needs to compete against the two dominant incumbent operators who hold a combined 78% of the market.



• It has taken H3G more than 10 years to reach a market share of 10%. Absent the merger, our 30% market share target will be a distant goal. With the merger, we can accelerate our business plan with early LTE roll-out, the offer of new products and technology and aggressive pricing.



• The merger will therefore benefit consumers with a combined entity better able to mount a more effective competitive challenge against the incumbents. It will also ensure the investment needed to guarantee early LTE roll-out, better network coverage, higher speeds and less network congestion.



• The Commission's preliminary conclusion that this merger will reduce competition ignores these obvious pro-competitive effects and is wrong. Rather, the merger will ensure sustainable competition in Austria for the longer term.

The Commission has recently said that consolidation in the telecoms field can be beneficial if it increases efficiency, emphasizing cross-border consolidation. It is wrong, however, to assume that only cross-border consolidation can achieve efficiencies.

It is widely recognised that the main source of efficiencies is the in-country consolidation of operations, including network, sales, marketing and administrative functions. The combination of H3G and Orange does exactly that.

H3G's offer of remedies: In an effort to achieve a speedy approval of the merger (and despite our view that the merger results in compelling pro-competitive effects), we have engaged in detailed remedy discussions with the Commission. As previously indicated, we made a very favourable and comprehensive MVNO access offer to all comers that will introduce new and effective competition in the Austrian market. The terms we have offered are extremely attractive and unmatched in Europe and will ensure that Austrian consumers benefit from a choice of new and competitive mobile services in all segments of the market (voice, data, prepaid and postpaid).

Our offer has already been endorsed by two substantial market players, and we are in active discussions with a number of others.

Instead of opposing the merger of the two smallest operators in Austria on the basis of its 4 to 3 concerns, the Commission should allow it to proceed and facilitate the entry of new, competitive MVNO players in the Austrian market. Our MVNO offer creates the favourable conditions for that to happen. This, rather than a rejection of the merger, will ensure a pro-competitive outcome for Austria.

The Commission should also take into account, and be concerned with, H3G's own ability to compete post-merger. The intensity and effectiveness of our continuing competitive challenge will depend largely on the means at H3G's disposal to continue to drive the market with a better network and attractive pricing. Additional structural remedies or economic commitments imposed on H3G by the Commission mean adding adverse economic burdens on H3G, the smallest player in the market. That will only undermine H3G's ability to be an effective competitor, to the detriment of Austrian consumers and the Austrian economy.

We will detail these and other points in our response to the Commission's Statement of Objections and are hopeful that we can convince the Commission of the pro-competitive benefits of the proposed merger. We will continue to work with the Commission in order to achieve a positive outcome. ENDS