The telecommunications sector in Europe is immersed in a debate about its future and competitiveness. Following this point, market consolidation could influence network quality, prices for consumers and other performance outcomes. This is highlighted by the Ookla report, which analyzes how the number of operators in a market affects network quality and prices for consumers throughout the European Union as well as in other high-income markets.
The findings suggest that consolidation is not a panacea for improving Europe’s digital competitiveness. Although market structure and the number of operators influence network quality, market concentration is not the only determinant of favorable competitive outcomes.
Tri-carrier markets tend to offer better performance in terms of download speeds, but this does not necessarily translate into lower prices for consumers. Furthermore, competition policy in Europe needs to be adapted to take into account different market characteristics and local dynamics, rather than applying a one-size-fits-all formula.
Recent Transformations in Telecommunications Consolidation
The consolidation of the sector has gained attention thanks to the proposals of Mario Draghi. Draghi argues that fragmentation and inefficiency limit the sector’s potential, suggesting that a more consolidated approach could foster innovation and global competitiveness. This change in competition policy seeks to promote a Digital Single Market in telecommunications, encouraging cross-border mergers to create pan-European operators.
Large telecommunications groups support these proposals, pointing out that price-based competition has created a cycle of decline that discourages investment in networks. A more forward-looking regulatory approach could improve conditions to compete with markets in North America and Asia.
Market Structure and Effects
The study uses the Herfindahl-Hirschman Index (HHI) to assess how market structure and concentration affect network quality and prices in Europe and other high-income countries. Three-carrier markets tend to offer superior network performance and greater consumer satisfaction compared to four-carrier markets.
Speedtest Intelligence data reveals a positive correlation between download speeds and average revenue per user (ARPU) in the Danish, Swedish and French markets
During the second and third quarters of 2024, three-operator markets in the EU had median download speeds 56% higher than four-operator markets. However, market concentration is not a robust predictor of 5G coverage, as socioeconomic factors such as economic development and population distribution have a more significant impact.
Price Competition and Effects on the Consumer
Price competition has led to a notable decline in mobile data prices in four-carrier markets. However, in markets with three operators, the cost per gigabyte of mobile data is almost five times higher. Although economic theory suggests that greater concentration can lead to higher prices, empirical results indicate that consumers in four-player markets enjoy significantly lower prices. For example, four-carrier markets had a median monthly cost per gigabyte of $0.69, compared to $1.66 in three-carrier markets.
Global Impact and Comparisons
Comparing the European model with other regions, Europe has a lower concentration rate compared to North America and Asia. This highlights the need for a more nuanced and localized approach that takes into account the diverse realities of the European market.
Although supporting large mergers may seem attractive to create economies of scale, the study argues that market realities are more complex. A one-size-fits-all approach will not be enough to raise Europe’s digital competitiveness; A set of precise policies is required that encourage new investments, promote network sharing and reduce regulatory bureaucracy.
