There have been a number of recent developments in communications markets that may significantly alter the competitive landscape. First, the UK Competition and Markets Authority (CMA) has provisionally cleared BT to takeover the EE mobile phone network. The deal will allow BT to re-establish itself as a mobile network provider, having previously owned O2 until it was sold in 2005. The CMA said that:
They operate largely in separate areas with BT strong in supplying fixed communications services (voice, broadband and pay TV), EE strong in supplying mobile communications services, and limited overlap between them in both categories of service.
BT will therefore be in a better position to compete with rivals such as Virgin Media who were early movers in offering. 
Second, O2 itself (currently owned by Telefónica) is the subject of a takeover bid from Hutchinson Whampoa who already owns the mobile network Three. Because the companies meet their turnover criteria, this deal is being investigated by the European Commission (EC) and the signs don’t look good. If it goes ahead, it would create the largest mobile operator in the UK and leave just three main players in the market. The EC is concerned that the merger would lead to higher prices, reduced innovation and lower investment in networks. Previously, considerable consolidation in telecommunications markets across Europe has been allowed. However, recent evidence, including the prevention of a similar deal in Denmark, suggests the EC is starting to take a tougher stance.
If we compare the two proposed takeovers, it is clear that the O2–Three merger raises more concerns for the mobile communications market because they are both already established network providers. 
However, it is increasingly questionable whether looking at this market in isolation is appropriate. As communication services become increasingly intertwined and quad-play competition becomes more prevalent, a wider perspective becomes more appropriate. Once this is taken, the BT–EE deal may raise different, but still important, concerns.
Finally, the UK’s communications regulator, OFCOM, is currently undertaking a review of the whole telecommunications market. It is evident that their review will recognise the increased connections between communications markets as they have made clear that they will:
examine converging media services – offered over different platforms, or as a ‘bundle’ by the same operator. For example, telecoms services are increasingly sold to consumers in the form of bundles, sometimes with broadcasting content; this can offer consumer benefits, but may also present risks to competition.
One particular concern appears to be BT’s internet broadband network, Openreach. This follows complaints from competitors such as BSkyB who pay to use BT’s network. Their concerns include long installation times for their customers and BT’s lack of investment in the network. One possibility being considered is breaking up BT with the forced sale of its broadband network.
It will be fascinating to see how these communications markets develop over time.
BT takeover of EE given provisional clearance by competition watchdog The Guardian, Jasper Jackson (28/10/15)
Ofcom casts doubt on O2/Three merger BBC News, Chris Johnston (08/10/15)
BT and Openreach broadband service could be split in Ofcom review The Guardian, John Plunkett (16/07/15)
Questions
- What are the key features of communications markets? Explain how these markets have developed over the last few decades.
- What are the pros and cons for consumers of being able to buy a quad-play bundle of services?
- How do you think firms that are currently focused on providing mobile phone services will need to change their strategies in the future?
- Why is BT in a powerful position as one of the only owners of a broadband network?
- Instead of forcing BT to sell its broadband network, what other solutions might there be?
In December, most of the countries of the world will meet in Paris at the 21st annual United Nations Conference of the Parties (COP) on climate change. COP21 ‘will, for the first time in over 20 years of UN negotiations, aim to achieve a legally binding and universal agreement on climate, with the aim of keeping global warming below 2°C.’
When the Copenhagen conference (COP15) ended in disagreement in 2009, few people thought that the increase in renewable energy would be anything like sufficient to prevent global temperatures rising more than 2°C. But things have dramatically changed in the intervening six years.
Solar power and other renewables have increased dramatically and the technology for the cleaner burning of fossil fuels, including carbon capture and storage, has developed rapidly.
But perhaps the most important change has been the attitudes of governments. No longer is it a case of Europe and other developed countries moving in the direction of renewables, while developing countries, and, in particular, China and India, argue that their economic development requires a rapid expansion of coal-fired power stations. Now China, India and many other emerging countries are rapidly developing their renewable sectors. This is partly driven by the fall in the costs of renewables and partly by worries that climate change will directly effect them. Now the ‘pro-coal’ countries are in a minority.
And industry is realising that significant profit is to be made from the development and installation of power plants using renewable energy. This is driving both R&D and investment. As the Telegraph article, linked below, points out, in 2009 ‘the International Energy Agency (IEA) was still predicting that solar power would struggle to reach 20 gigawatts by now. Few could have foretold that it would in fact explode to 180 gigawatts – over three times Britain’s total power output – as costs plummeted, and that almost half of all new electricity installed in the US in 2013 and 2014 would come from solar’.
So is this a good news story? Will real progress be made at COP21 in Paris? The articles explore the issues.
Articles
Paris climate deal to ignite a $90 trillion energy revolution The Telegraph, Ambrose Evans-Pritchard (28/10/15)
OP21 deal critical for low-carbon economy Japan Times, Carlos Ghosn (29/10/15)
Is Solar Without Subsidies Now Viable? Oilprice.com, Michael McDonald (22/10/15)
Policy Paper
The road to Paris and beyond Centre for Climate Change Economics and Policy, Grantham Research Institute on Climate Change and the Environment (LSE), Rodney Boyd, Fergus Green and Nicholas Stern (August 2015)
Report
Energy and Climate Change International Energy Agency (October 2015)
Questions
- What are the drivers for a move from fossil fuels to renewables? Are they similar dirvers in both developed and developing countries?
- What externalities are involved in energy production (a) from fossil fuels; (b) from renewables?
- What policies can be adopted to internalise the externalities?
- What are the merits and problems of a carbon trading scheme? What determines its effectiveness in reducing CO2 emissions?
- Why are more and more investors moving into the renewable energy sector? Could this become a speculative bubble? Explain.
- How might game theory help to explain the process and outcomes of international negotiations over climate change and energy use?
After initial resistance, the brewer SAB Miller last week agreed to a merger with Anheuser-Busch InBev (AB InBev). The merging parties own over 400 brands between them. These include Budweiser, Stella Artois and Beck’s, which are owned by AB InBev, and Peroni and Grolsch by SAB Miller. Furthermore, they are currently the number one and two firms in the market respectively. If the merger goes ahead the new entity would control almost one third of global beer production.
This merger represents the continuation of AB InBev’s aggressive expansion plans through mergers and acquisitions as it follows its merger with Interbrew in 2004 and with InBev in 2008. It seems that one key attraction of a merger with SAB Miller is its dominant position in rapidly growing African markets.
A second motivation for the merger appears to be an attempt to counter the rise of small independent craft beer producers. For example, in the USA craft beer’s share of the market has grown from 5 to 11% since 2011. It has been suggested that the leading breweries combining forces represents one of several strategies being used to try to counter the threat of craft breweries. Additional strategies include creating their own craft products that are marketed as independant products and attempting to buy-up craft beer producers. For example, in 2011 AB InBev purchased the Goose Island brand.
Commenting on the planned merger between SAB Miller and AB InBev, a spokesman for the Campaign for Real Ale group expressed concern that:
independent beers may find it harder to get space in pubs and supermarkets because of the increased market presence of AB InBev.
Given the market positions of SAB Miller and AB InBev, it is likely that their merger will face considerable scrutiny by competition agencies in a number of jurisdictions. In fact it has been reported that plans have already been set in motion to sell SAB Miller’s interests in the USA to try to placate potential concerns from competition agencies in the USA and China.
Interestingly, SAB Miller has also protected itself by negotiating a clause that requires AB InBev to pay it $3bn if the deal falls through, for example on competition grounds. It remains to be seen what conditions competition authorities will require before the merger can go ahead and it is even possible they will try to completely block the deal.
Why beer drinkers lose in the SABMiller-AB InBev merger Fortune, John Colley (13/10/15)
Can craft beer survive AB InBev? The Budweiser maker’s acquisitions are unsettling the craft movement Bloomberg Business, Devin Leonard (25/06/15)
Questions
- How important do you think it is to consumers who a particular brand of beer is produced by?
- How serious a threat do you think independent craft beer producers are to the leading breweries?
- Outline some of the factors competition agencies will look at when they consider the merger between SAB Miller and AB InBev.
- Why might AB InBev have been willing to agree to pay a fee to SAB Miller in the event of the merger falling through?
Obesity is on the rise, especially in children. With all the attendant health problems, concern is growing and various policies have been proposed to try to tackle the problem. One such policy is a sugar tax. This could be either a universal tax on sugar in food products or a tax just on soft drinks, many of which are very high in sugar – typically about seven teaspoons in a can or individual bottle.
Currently the issue is being considered by the UK’s Parliamentary Health Select Committee. Jamie Oliver, the TV chef and restaurateur, argued strongly before the committee in favour of a sugar tax on fizzy drinks. He has already imposed a levy on soft drinks with added sugar in his restaurants. He maintained that it was not just the higher price from a sugar tax that would deter consumption of such drinks, but it would send out an important message that too much sugar is bad for you.
Two days later, Dr Alison Tedstone appeared before the committee. She is chief nutritionist at Public Health England. PHE has been carrying out research into obesity and ways of tackling it. It has reviewed two types of evidence: experimental data on the effects of imposing higher prices on products with added sugar; and the effects of policies pursued in other countries. She stated to the committee that ‘universally all the evidence shows that the tax does decrease consumption’ and that ‘the higher the tax increase, the greater the effect’.
The government was not planning to publish the report at this stage, but under considerable pressure agreed to its publication.
The articles look at the prospects for a sugar tax, its likely effects if one were introduced and at the politics of the situation, which are likely to result in such a tax being rejected.
Videos and audio podcasts
Can you be trusted to eat less sugar? BBC News, Hugh Pym (22/10/15)
‘Introduce sugar tax’, health officials tell government Channel 4 News, Victoria Macdonald (22/10/15)
Jamie Oliver: ‘Bold’ sugar tax to beat childhood obesity BBC News, Hugh Pym (19/10/15)
Be bold on sugar tax, Jamie Oliver says BBC News, Nick Triggle (19/10/15)
Health scientists’ links with sugar industry queried BBC News, Dominic Hughes (12/2/15)
Mexico’s soda tax is starting to change some habits, say health advocates PRI’s The World on YouTube, Jill Replogle (2/12/14)
Articles
Jeremy Hunt told sugar tax would cut childhood obesity as review Government tried to suppress is published Independent, Charlie Cooper (20/10/15)
Sugar tax could help solve Britain’s obesity crisis, expert tells MPs The Guardian, Ben Quinn (21/10/15)
Jamie Oliver ‘expects kicking’ over sugar tax The Guardian, Jessica Elgot (22/10/15)
Sugar tax, fat fines and gold coins: new ways cities are tackling obesity The Guardian, Sarah Johnson (22/10/15)
Sugar tax and offers ban ‘would work’ BBC News (22/10/15)
Public Health England tells UK government: Sugar taxes do work FoodNavigator.com, Niamh Michail (21/10/15)
Childhood Obesity Partially Down To The Coco Pops Monkey, Sugar Tax Report Claims Huffington Post, Sarah Ann Harris (21/10/15)
Health officials back a sugar tax – and want the Coco Pops monkey banned The Telegraph, Laura Donnelly (20/10/15)
Jeremy Hunt embroiled in row over sugar tax report The Telegraph, Laura Donnelly (11/10/15)
Revealed: ‘Sugar tax report’ which was suppressed by Government The Telegraph, Laura Donnelly (22/10/15)
Public Health England obesity report: the key points The Guardian, James Meikle (22/10/15)
Cameron says no to sugar tax Mail Online, Jason Groves and Daniel Martin (21/10/15)
Sugar tax: Former health minister backs levy to prevent NHS ‘obesity crisis’ Independent, Charlie Cooper (21/10/15)
Journal articles and reports
Sugar Reduction: The evidence for action Public Health England, Dr Alison Tedstone, Victoria Targett, Dr Rachel Allen and staff at PHE (22/10/15)
Effects of a fizzy drink tax on obesity rates estimated NHS CHoices (1/11/13)
Overall and income specific effect on prevalence of overweight and obesity of 20% sugar sweetened drink tax in UK: econometric and comparative risk assessment modelling study British Medical Journal, Adam D M Briggs, Oliver T Mytton, Ariane Kehlbacher, Richard Tiffin, Mike Rayner and Peter Scarborough (2013;347:f6189)
Perspectives: Time for a sugary drinks tax in the UK? Journal of Public Health, Oliver Mytton (29/5/14)
Sugar reduction: Responding to the challenge Public Health England, Dr Alison Tedstone, Ms Sally Anderson and Dr Rachel Allen and staff at PHE (June 2014)
Questions
- What factors are driving the current high consumption of sugar?
- How is the concept of price elasticity of demand relevant to the effectiveness of imposing a sugar tax?
- What would determine the incidence of such a tax between food and drink manufacturers and consumers?
- Would such a tax be progressive, regressive or neutral? Explain.
- What other policies could be pursued to discourage the consumption of sugar? Discuss their likely effectiveness and compare them with a sugar tax.
- What externalities are involved in sugar consumption? How would you set about measuring them? Should a sugar tax be set at a rate that internalises the estimated externalities?
- Examine the objections to imposing a sugar tax.
The 2015 Rugby World Cup is now well under-way, with record crowds, surprising results and some heartbreak. But what about the economic impact of the Rugby World Cup? Big sporting events bring in spectators (estimated to be 466,000), athletes and crucially they all spend money. But what happens when the host country doesn’t make it through? Unfortunately for all England fans out there, this is a very relevant question.
Go to the area surrounding a stadium on the day of a rugby world cup match and you will barely find a pub with any room to move. Spending on drinks and food in local pubs and restaurants on match days is extremely high and many hotels are at breaking point with reservations. Predictions were that there would be an increase in direct expenditure by international visitors of £869 million. A report by Ernst and Young looked at the Economic Impact of the Rugby World Cup 2015 and it provides detailed analysis of how such sporting events can generate benefits to the host nation. The highlights are:
- £2.2 billion of output into the economy
- £982 million of value added to national GDP
- £85 million in infrastructure
- 41,000 jobs across the country
- £1 billion of added value
But, what happens when you take out the host team? Suddenly we see less interest in the daily matches and the feel good spirit takes a dive. Of course, the other home teams are still around and English fans are being encouraged to support them, but commentators suggested that this early exit will have a significant economic impact. Alex Edmans from the London Business School suggests that when a host nation exits a rugby sporting event at an early stage, the pessimism can wipe 0.15% of the stock market the following day. This translates to around £3 billion for the UK. He noted:
A defeat makes investors more negative about life in general. If England were to lose, they wouldn’t just be negative about the England rugby team but also about economic outcomes in general.
Advertising revenues may also be hit, with a significant impact on ITV, who are showing all matches. With England out, the value of advertising slots has fallen and the advertising impact on some of the key England sponsors, such as O2, may be significant. However, English ticket holders may use this as an opportunity to make money, selling on their tickets to fans of surviving teams! The following articles and report from Ernst and Young consider this latest major sporting event that has come to the UK.
Articles
The Economic Impact of Rugby World Cup 2015 Ernst and Young 2014
An England Rugby World Cup exit could have knock-on effect for our stock market The Guardian, Sean Farrell (1/10/15)
Brands cheer on Rugby World Cup in face of England’s exit Financial Times, Malcolm Moore (4/10/15)
Rugby World Cup 2015: Early England exit could cost country £3bn International Business Times, Alfred Joyner (6/10/15)
Rugby World Cup brands play down commercial losses of England’s ‘lacklustre’ exit The Drum, Seb Joseph (5/10/15)
Questions
- What is an Economic Impact Analysis?
- How would you estimate the size of the multiplier effect of a sporting event, such as the Rugby World Cup?
- Following England’s exit, what happened to the stock market?
- How will media companies be affected by the Rugby World Cup and by England’s exit?
- Why do emotions affect the stock market?
- Do you think England’s exit will lead to greater spending in other parts of the country, such as Scotland and Wales, as England fans defect?
Second, O2 itself (currently owned by Telefónica) is the subject of a takeover bid from Hutchinson Whampoa who already owns the mobile network Three. Because the companies meet their turnover criteria, this deal is being investigated by the European Commission (EC) and the signs don’t look good. If it goes ahead, it would create the largest mobile operator in the UK and leave just three main players in the market. The EC is concerned that the merger would lead to higher prices, reduced innovation and lower investment in networks. Previously, considerable consolidation in telecommunications markets across Europe has been allowed. However, recent evidence, including the prevention of a similar deal in Denmark, suggests the EC is starting to take a tougher stance.
However, it is increasingly questionable whether looking at this market in isolation is appropriate. As communication services become increasingly intertwined and quad-play competition becomes more prevalent, a wider perspective becomes more appropriate. Once this is taken, the BT–EE deal may raise different, but still important, concerns.
