In a blog in October 2024, we looked at global uncertainty and how it can be captured in a World Uncertainty Index. The blog stated that ‘We continue to live through incredibly turbulent times. In the past decade or so we have experienced a global financial crisis, a global health emergency, seen the UK’s departure from the European Union, and witnessed increasing levels of geopolitical tension and conflict’.
Since then, Donald Trump has been elected for a second term and has introduced sweeping tariffs. What is more, the tariffs announced on so-called ‘Liberation Day‘ have not remained fixed, but have fluctuated with negotiations and threatened retaliation. The resulting uncertainty makes it very hard for businesses to plan and many have been unwilling to commit to investment decisions. The uncertainty has been compounded by geopolitical events, such as the continuing war in Ukraine, the war in Gaza and the June 13 Israeli attack on Iran.
The World Uncertainty Index (WUI) tracks uncertainty around the world by applying a form of text mining known as ‘term frequency’ to the country reports produced by the Economist Intelligence Unit (EIU). The words searched for are ‘uncertain’, ‘uncertainty’ and ‘uncertainties’ and the number of times they occur as percentage of the total words is recorded. To produce the WUI this figure is then multiplied by 1m. A higher WUI number indicates a greater level of uncertainty.
The monthly global average WUI is shown in Chart 1 (click here for a PowerPoint). It is based on 71 countries. Since 2008 the WUI has averaged a little over 23 000: i.e. 2.3 per cent of the text in EIU reports contains the word ‘uncertainty’ or a close variant. In May 2025, it was almost 79 000 – the highest since the index was first complied in 2008. The previous highest was in March 2020, at the start of the COVID-19 outbreak, when the index rose to just over 56 000.
The second chart shows the World Trade Uncertainty Index (WTUI), published on the same site as the WUI (click here for a PowerPoint). The method adopted in its construction therefore mirrors that for the WUI but counts the number of times in EIU country reports ‘uncertainty’ is mentioned within proximity to a word related to trade, such as ‘protectionism’, ‘NAFTA’, ‘tariff’, ‘trade’, ‘UNCTAD’ or ‘WTO.’
The chart shows that in May 2025, the WTUI had risen to just over 23 000 – the second highest since December 2019, when President Trump imposed a new round of tariffs on Chinese imports and announced that he would restore steel tariffs on Brazil and Argentina. Since 2008, the WTUI has averaged just 2228.
It remains to be seen whether more stability in trade relations and geopolitics will allow WUI and WUTI to decline once more, or whether greater instability will simply lead to greater uncertainty, with damaging consequences for investment and also for consumption and employment.
Articles
Uncertainty Indices
Questions
- Explain what is meant by ‘text mining’. What are its strengths and weaknesses in assessing business, consumer and trade uncertainty?
- Explain how the UK Monthly EPU Index is derived.
- Why has uncertainty increased so dramatically since the start of 2025?
- Compare indices based on text mining with confidence indices.
- Plot consumer and business/industry confidence indicators for the past 24 months, using EC data. Do they correspond with the WUI?
- How may uncertainty affect consumers’ decisions?
The Digital Markets Act (DMA) outlines a new regulatory approach that the European Commission (EC) is taking to address concerns over the lack of competition in digital platform markets. The DMA complements existing European Union competition law and officially came into force on 1st November 2022.
In the first stage of this new regulatory approach, the EC identified ten core platform services (CPS). Examples include search engines, online social networking services, video sharing services, cloud computing services, web browsers and operating systems. These services act as important gateways for large numbers of businesses and consumers to interact with one another. They also have some important economic characteristics, such as large economies of scale and very strong network effects.
The next stage of the regulatory process was to assess which of the large established businesses should be designated as ‘gatekeepers’ of these CPS. To be judged as a gatekeeper, a business had to meet three qualitative criteria. Using quantitative thresholds as a guide to see if these qualitative criteria had been met, the following six companies were designated as gatekeepers by the EC in September 2023: Alphabet (Google’s parent company), Amazon, Apple, ByteDance (owner of TikTok), Meta (owner of Facebook) and Microsoft. Individual companies can be gatekeeper for more than one CPS. For example, Apple was judged to be a gatekeeper for both web browsers (Safari) and operating systems (iOS and iPadOS).
Rules and compliance
Once a business has been designated as a gatekeeper for one or more CPS, the DMA imposes a set of rules on its future conduct. Some of these rules refer to conduct that the business must follow, while others refer to types of behaviour that are prohibited. The EC sometimes refer to these rules as a list of “do’s” and “don’ts”.
One of the rules refers to interoperability. This is the degree to which different (a) software, (b) devices and (c) other applications can work seamlessly together (i.e. share functionality/data) without requiring any actions by the user (i.e. how compatible they are with one another).
For example, consider the degree of interoperability between the operating system of a gatekeeper, such as Apple, and other hardware/software services. One of the requirements of the DMA is for the gatekeeper to provide the same degree of interoperability for the hardware/software services provided by rival businesses as they do for similar hardware/software services they supply. This is sometimes referred to as the interoperability obligation.
Once a business is designated as a gatekeeper, it has 6 months to submit a compliance report to the EC that demonstrates how it is meeting the rules set out in the DMA. This should include descriptions of any changes the company has had to make to its conduct to meet the new requirements. Further compliance reports must then be submitted on an annual basis.
If, after assessing a compliance report, the EC suspects that a gatekeeper is still acting in ways that do not comply with the DMA, then it can launch either a non-compliance or specification procedure.
The case of Apple
Apple submitted its first compliance report on 7 March 2024. It was far less extensive than those completed by other designated gatekeepers and adopted a very different tone: it directly challenged the EC’s view that the DMA rules would have a positive impact on consumer welfare.
In September 2024, the EC launched its first two specification proceedings that focused on Apple’s compliance with the interoperability obligation.
The first of these proceedings opened a formal discussion with Apple over the interoperability between the iPhone operating system (iOS) and connected devices such as smartwatches and headphones. The proceeding identified nine features that gave the iOS greater functional compatibility with connected devices produced by Apple than with those made by other businesses. For example:
- Only users of connected devices produced by Apple can (a) receive iOS notifications that contain images or other attachments and (b) select the iOS notifications they want to appear on the device.
- Only users of Apple’s wireless headphones have intelligent audio switching functionality that allows them to switch automatically to the device playing the most relevant audio.
- The Airdrop function, which enables users to share files wirelessly between devices, only works if they are both produced by Apple.
- Only connected devices made by Apple have the functionality for high-bandwidth data transfer from an iPhone without having to rely on network or cellular connection. This is useful for gaming and AI services.
The second specification proceeding focused on the process developed by Apple to deal with requests from other businesses that wanted to develop hardware or software services that are compatible with the iOS.
On 18th December 2024, the EC informed Apple of its preliminary specification decisions and opened a consultation exercise with other interested parties about the suitability of its proposals. Once this process was completed, the EC informed Apple of its final specification decisions on 19 March 2025.
The EC’s decisions
The first decision included a set of measures that Apple must take to improve the interoperability of connected devices produced by other businesses with the iOS. The EC stated that:
The interoperability solutions for third parties will have to be equally effective to those available to Apple and must not require more cumbersome system setting or additional user friction.
The second decision outlined measures that Apple had to take to improve the process of dealing with requests for greater compatibility with the iOS. For example, it should provide outside businesses with more (a) access to technical documentation, (b) predictable timelines for the reviews and (c) timely updates.
Apple argued that being forced to introduce these measures will (a) create significant additional costs, (b) limit its ability to develop products that work seamlessly with one another and (c) lead to its having to share sensitive customer information with its rivals.
On 30th May 2025, Apple filed an appeal against the EC’s specification decisions to the General Court of the European Union. It will be interesting to see what judgment is made on this case by the General Court and the implications this has for the enforcement of the DMA.
Video
Articles
- The EU Digital Markets Act – The Holy Grail of Big Tech Regulation?
Morrison & Foerster, Andreas Grünwald, Christoph Nüßing and Theresa Oehm (19/7/22)
- Commission starts first proceedings to specify Apple’s interoperability obligations under the Digital Markets Act
EC Press Release (19/9/24)
- Apple hits out at Meta’s numerous interoperability requests
Reuters, Foo Yun Chee (19/12/24)
- 1st Anniversary of the Digital Markets Act (DMA): Lessons learned and road ahead
Hausfeld Competition Bulletin, Ann-Christin Richter and René Galle (28/3/25)
- EU accuses Google and Apple of breaking its rules, risking Trump clash
The Guardian, Rob Davies and Dan Milmo (19/3/25)
- Brussels takes action against Google and Apple despite Trump threat
Financial Times, Barbara Moens (19/3/25)
- Brussels Takes Action Against Google And Apple Despite Trump Threat
GNC (19/3/25)
- Commission provides guidance under Digital Markets Act to facilitate development of innovative products on Apple’s platforms
EC Press Release (19/3/25)
- European Commission Fines Both Apple, Meta For DMA Breaches
Silicon UK, Tom Jowitt (23/4/25)
- Apple Appeals European Commission Order on Interoperability With Competitors’ Products
PYMNTS (2/6/25)
- https://dig.watch/updates/apple-sues-european-commission-over-dma-interoperability-ruling
The Digital Watch (6/6/25)
- Meta, Apple Launch Legal Challenges to EU DMA Rulings
PYMNTS (3/6/25)
Questions
- Identifying core platform services is similar to defining relevant markets in standard competition policy but takes a more legalistic approach. Discuss some of the problems of defining a relevant market for a digital platform.
- Outline the three qualitative criteria and the quantitative thresholds that are used by the EC to designate a digital platform as a gatekeeper of a core platform service.
- Find an example of a digital platform that met the quantitative thresholds but did not meet the qualitative criteria and so was not designated as a gatekeeper.
- Find an example of a digital platform that did not meet the quantitative thresholds but did meet the qualitative criteria and so was designated as a gatekeeper.
- Interoperability is a type of conduct that is sometimes referred to as self-preferencing: i.e. behaviour by a digital platform that gives its own products/services preferential treatment over those provided by other firms that use the same platform. What other types of conduct are possible examples of self-preferencing?
- What is the difference between a non-compliance procedure and a specification procedure? Find some recent examples of non-compliance procedures that have been undertaken by the EC to enforce the DMA.
- What are the potential advantages and disadvantages for consumer welfare of the specification decisions made by the EC?
The enforcement of Article 102 of the Treaty on the Functioning of the European Union (TFEU) by the European Commission (EC) tends to focus on exclusionary abuses by firms with significant market power. Exclusionary abuses are actions that limit or prevent competition, as opposed to exploitative abuses that directly harm the consumer, such as charging high prices.
The treatment of exclusionary abuses has evolved over time. Initially, the approach towards enforcement was form-based (i.e. the nature of the abuses), but this changed when the EC produced new guidelines in 2009 which signalled a move to a more effects-based approach.
The EC plans to produce a new set of guidelines in 2025 and published a draft version in August 2024 as part of the consultation process with businesses and other stakeholders. These draft guidelines indicate a partial shift back to a form-based approach. Any moves in this direction made by the EC are likely to influence both national-level competition authorities and the courts.
The form-based approach to policy enforcement
A form-based approach to the enforcement of Article 102 assumes that certain types of business conduct are inherently anti-competitive except in very exceptional circumstances. In other words, there is a presumption that the characteristics or form of the behaviour mean that it must have a negative impact on competition and consumer welfare in virtually all real-world cases.
With a form-based approach to enforcement there is no requirement for the authorities to carry out detailed case-specific analyses of business conduct as part of an investigation. This had been the approach adopted by the EC before 2009. It is possible, however, that the same form of business conduct could have anti-competitive effects in some market situations but pro-competitive effects in others. The EC was criticised for not making enough allowance for the chances of this happening.
The effects-based approach to policy enforcement
In response to this criticism the European Union published a new set of guidelines in 2009 which signalled that the enforcement of Article 102 was moving to a more effects-based approach. The effects-based approach uses economic analysis to assess the impact of a dominant firm’s conduct on a case-by-case basis. Context-specific evidence is examined by the competition authorities to see if the behaviour effectively excludes rival businesses from the market that are just as efficient as the dominant firm.
The use of economics in this effects-based approach gradually increased over time. Initially, the analysis was predominately based on theoretical arguments, but increasingly cases included sophisticated analysis of market-specific evidence using econometric models and market simulations. This, however, led to the following issues.
- The increasing use of complex economic analysis makes it more difficult to meet the evidentiary standards of the courts and prove a case. As the effects-based approach places a greater burden on the competition authorities to meet these evidentiary standards (i.e. provide evidence of case-specific anti-competitive effects of the conduct) it disproportionality affects their ability to prove cases.
- Businesses with significant market power are more likely to make large profits and so have access to greater resources than government-funded competition authorities. Therefore, they will be able to employ more economic consultants with the relevant technical expertise to (a) carry out the analysis and (b) communicate the findings effectively in a court case
This led to concerns that the competition authorities were losing cases where there was strong evidence of exclusionary conduct by the dominant firm.
In response to these concerns, the EC announced in 2023 that it would be revising its 2009 guidelines to improve enforcement of Article 102.
The draft guidelines
The draft guidelines published in August 2024 split different types of potentially anti-competitive conduct by dominant firms into three categories.
The first category includes types of conduct where there is a strong presumption of anti-competitive effects: i.e. the sole purpose of the business behaviour is to restrict competition. These types of conduct are referred to as a ‘naked restriction’ and the documentation provides the following three examples:
- making payments to customers (typically other businesses) on the condition that they cancel or postpone the launch of a product that uses inputs produced by the dominant firm’s rivals;
- threatening to withdraw discounts offered to suppliers unless they agree to supply the dominant firm’s product in place of a similar product produced by a rival firm;
- actively dismantling infrastructure used by a rival firm.
The guidelines indicate a form-based approach will be taken when investigating these types of conduct as the EC will not have to provide any case-specific evidence of anti-competitive effects. A business under investigation can challenge the presumption of anti-competitive effects with appropriate evidence, but the guidelines make it clear that this would only succeed in exceptional circumstances. In other words, it is highly unlikely that the conduct could ever be justified on pro-competitive grounds.
The second category of anti-competitive conduct includes actions that are also presumed to have a negative impact on competition. The presumption, however, is not as strong as with naked restrictions, so firms have a better chance of proving pro-competitive effects.
There is a form-based element towards this second category of conduct as the EC will not have to provide any initial case specific evidence of anti-competitive effects. But, if a business under investigation does submit evidence to challenge the presumption of anti-competitive effects, the EC must demonstrate that (a) it has fully assessed this evidence and (b) the evidence is insufficient to prove that the conduct does have pro-competitive effects. As part of this process, the EC can provide its own case-specific evidence. Therefore, for this second category of conduct, the initial burden of proof effectively shifts from the competition authority to the firm under investigation, making it more of a form-based approach. However, if the firm uses relevant evidence to appeal its case, the burden shifts back to the competition authority and becomes a more effects-based approach.
The third category includes types of conduct where the EC must initially provide case-specific evidence that it reduces competition. For this category of conduct, the approach towards enforcement remains the same as in the 2009 guidelines and an effects-based approach is adopted.
It will be interesting to see the extent to which the final guidelines (a) follow the approach outlined in the draft guidance and (b) influence the enforcement of Article 102 by the EC and other national-level competition authorities.
Articles
Questions
- What exactly does it mean if a firm has ‘significant’ market power?
- What methods do competitions authorities use to assess whether a firm has a dominant market position?
- Explain the difference between conduct by dominant firm that is (a) an exploitative abuse of its market power and (b) an exclusionary abuse of its market power.
- Explain why a form-based approach towards the enforcement of competition policy is more likely to lead to Type 1 errors (false positives), whereas an effects-based approach is more likely to lead to Type 2 errors (false negatives).
- Provide some examples of exclusionary abuses that are not considered to be naked restrictions.
- Competition policy guidance documents commonly refer to ‘competition on the merits’. What is the precise meaning of this term?
Tesla sales have fallen dramatically recently. In Europe they were down 47.7% in January 2025 compared with January 2024. In Spain the figure was 75.4%, in France 63.4%, in Germany 59.5%, in Sweden 44.3%, in Norway 37.9%, in the UK 18.2% and in Italy 13.4%. And it was not just Europe. In Australia the figure was 33.2%, in China 15.5% and in California 11.6%. Meanwhile, Tesla’s share price has fallen from a peak of $480 on 17 December 2024 to $338 on 21 February 2025, although that compares with $192 in February 2024.
So why have Tesla sales fallen? It’s not because of a rise in price (a movement up the demand curve); indeed, Tesla cut its prices in 2024. Part of the reason is on the supply side. In several countries, stocks of Teslas are low. Some consumers who would have bought have had to wait. However, the main reason is that the demand curve has shifted to the left. So why has this happened?
A reaction to Elon Musk?
One explanation is a growing unpopularity of Elon Musk among many potential purchasers of electric vehicles (EVs). People are more likely to buy an EV if they are environmentally concerned and thus more likely to be Green voters or on the political left and centre. Elon Musk, by supporting Donald Trump and now a major player in the Trump administration, is seen as having a very different perspective. Trump’s mantra of ‘drill, baby drill’ and his announced withdrawal from the Paris agreement and the interventions of Trump, Vance and Musk in European politics have alienated many potential purchasers of new Teslas. Elon Musk has been a vocal supporter of the right-wing Alternative for Germany (AfD) party, describing the party as the ‘last spark of hope for this country’ (see BBC article linked below).
There has been outspoken criticism of Musk in the media and the Financial Times reports existing owners of Teslas, who are keen to distance themselves from Musk, ordering stickers for their cars which read ‘I bought this before Elon went crazy’. In a survey by Electrifying.com, 59% of UK potential EV buyers stated that Musk’s reputation put them off buying a Tesla.
Other reasons for a leftward shift in the demand for Teslas
But is it just the ‘Musk factor’ that has caused a fall in demand? It is useful to look at the general determinants of demand and see how each might have affected the demand for Teslas.
The price, number, quality and availability of substitutes Tesla faces competition, not only from long-established car companies, such as Ford, VW, Volvo/Polestar, Seat/Cupra and Toyota, moving into the EV market, but also from Chinese companies, such as BYD and NIO. These are competing in all segments of the EV market and competition is constantly increasing. Some of these companies are competing strongly with Tesla in terms of price; others in terms of quality, style and imaginative features. The sheer number of competitor models has grown rapidly. For some consumers, Teslas now seem dated compared with competitors.
The price and availability of complements. The most relevant complement here is electrical charging points. As Teslas can be charged using both Tesla and non-Tesla charging points, there is no problem of compatibility. The main issue is the general one for all EVs and that is how to achieve range conveniently. The fewer the charging points and more widely disbursed they are, the more people will be put off buying an EV, especially if they are not able to have a charging point at home. Clearly, the greater the range of a model (i.e. the distance that can be travelled on a full battery), the less the problem. Teslas have a relatively high range compared with most (but not all) other makes and so this is unlikely to account for the recent fall in demand, especially relative to other makes.
Expectations. The current best-selling Tesla EV is the Model Y. This model is being relaunched in a very different version, as are other Tesla models. Consumers may prefer to wait until the new models become available. In the meantime, demand would be expected to fall.
Conclusions
As we have seen, there have been a number of factors adversely affecting Tesla sales. Growing competition is a major factor. Nevertheless, the increasing gap politically between Elon Musk and many EV consumers is a major factor – a factor that is likely to grow in significance if Musk’s role in the Trump administration continues to be one of hostility towards the liberal establishment and in favour of the hard right.
Articles
- Tesla’s sales plummet across Europe
Financial Times, Patricia Nilsson, Laura Pitel and Kana Inagaki (6/2/25)
- Tesla sales plummet nearly 50% in Europe – what’s behind the drop?
motor1.com, Brian Potter (5/2/25)
- Elon Musk is putting buyers off Tesla, survey reveals
Electrifying.com, Tom Barnard (27/1/25)
- ‘I felt nothing but disgust’: Tesla owners vent their anger at Elon Musk
The Guardian, Ashifa Kassam (25/2/25)
- Elon Musk is putting consumers off buying Tesla cars with his behaviour, research suggests
indy100, Ellie Abraham (27/1/25)
- Are Elon Musk’s politics costing Tesla sales?
CNN, Chris Isidore (18/2/25)
- Is Tesla’s sales slump down to Elon Musk?
The Conversation, James Obiegbu and Gretchen Larsen (11/2/25)
- Tesla Sales Are Tanking Across The World
InsideEVs, Patrick George (8/2/25)
- Is Elon Musk steering Tesla into a brand crisis?
The Drum, Audrey Kemp (29/1/25)
- Why are Tesla sales down? Elon Musk’s politics may be to blame
The Standard, Saqib Shah (18/2/25)
- Tesla sales slump on ageing line up, competition
Argus, Chris Welch (12/2/25)
- Trends in electric vehicle charging, Global EV Outlook 2024
International Energy Agency (23/4/24)
- What Are Tesla’s (TSLA) Main Competitors?
Investopedia, Peter Gratton (1/2/25)
- Europe leaders criticise Musk attacks
BBC News, Paul Kirby & Laura Gozzi (7/1/25)
- German far-right leader Weidel woke up to missed call from Elon Musk
Yahoo News, dpa international (24/2/25)
- ‘Major brand worries’: Just how toxic is Elon Musk for Tesla?
The Guardian, Dan Milmo and Jasper Jolly (8/3/25)
Questions
- Why have BYD EV sales risen so rapidly?
- If people feel strongly about a product on political or ethical grounds, how is that likely to affect their price elasticity of demand for the product?
- Find out how Tesla shareholders are reacting to Elon Musk’s behaviour.
- Find out how Tesla sales have changed among (a) Democratic voters and (b) Republican voters in the USA. How would you explain these trends?
- Identify some products that you would or would not buy on ethical grounds. How carefully have you researched these products?
In September 2023, UK mobile phone network operators Vodafone and Three (owned by CK Hutchinson) announced their intention to merge. At the time, in terms of total revenue from the supply of mobile phone services to consumers, Vodafone and Three had market shares of 23% and 12%, respectively.
In addition to Vodaphone and Three, there are two other major network operators – the BT Group (BT & EE) and Virgin-media 02, with market shares of around 31% and 23%, respectively, with other operators having a combined market share of 12%. As we shall see below, these other operators use one of the four major networks. Therefore, the merged entity of Vodafone-Three would become the market leader with a share of around 35% and there would only be three major network operators competing in the UK.
Not surprisingly, the UK competition agency, the Competition and Markets Authority (CMA), decided to conduct a detailed investigation into whether the merger would harm competition. However, in early December 2024 the CMA announced its decision to allow the merger to go ahead, subject to several important commitments by the merging parties.
CMA’s phase 1 findings
The CMAs phase 1 investigation raised several concerns with the merger (see fifth CMA link below).
First, it was worried that retail and business customers would have to pay higher prices for mobile services after the merger.
Second, in addition to the four mobile network operators, the UK market is served by a number of mobile ‘virtual’ network operators (MVNOs), for example Sky Mobile and Lyca Mobile. As we saw above, these suppliers account for around 12% of the consumer retail market. The MVNOs do not own their own networks and instead agree wholesale terms with one of the network operators to access their network and supply their own retail mobile services. The CMA was concerned that since the merger would reduce the number of networks competing to host these MVNOs from four to three, it would result in MVNOs paying higher wholesale access prices.
Vodafone and Three did not offer any remedies to the CMA to address these competition concerns. Consequently, the CMA referred the case to phase 2 for a more thorough investigation.
CMA’s phase 2 findings
The CMA’s analysis in phase 2 confirmed its earlier concerns (see linked report below). It was still worried that because the merged entity would become the largest network operator, retail customers would face higher prices or get a poorer service – for example, a reduced data allowance in their contract. In addition, the CMA remained concerned that the MVNOs would be negatively impacted and that this would lessen their ability to offer the best deals to retail customers.
However, during the phase 2 investigation, the merging parties put forward various efficiency justifications for the merger. They argued that the merger would provide them with much needed scale and investment capacity to improve their network and roll-out 5G technology. The CMA recognised these claims but questioned the merging parties’ incentives to go through with the investment once the merger was approved. Furthermore, it was concerned that if they did invest, this would be funded by raising the prices charged to consumers.
As a result, the CMA only agreed to allow the merger once Vodafone and Three accepted remedies that would address these concerns.
The remedies necessary for the merger to proceed
First, the merged entity must cap a range of tariffs and data plans it offers in the retail market for three years.
Second, again for three years, it must commit to maintain the wholesale contract terms it offers to MNVOs.
Finally, over the next eight years, the merged entity must deliver the network upgrade plans that it claimed the merger would allow. The CMA believes that in the long run this network development would significantly boost competition between the three remaining mobile network operators.
The acceptance of remedies of this nature was unusual for the CMA. Typically, like other competition agencies, the CMA has favoured divestment remedies in which the merging parties are required to sell-off some of the assets or capacity acquired. In contrast, the remedies in the Vodafone-Three deal impact on the merging parties’ behaviour.
One clear disadvantage of such remedies is that they require the merged firm’s actions to be monitored, in this case for eight years, to make sure it adheres to the agreed behaviour. One reason why the CMA may have been willing to accept this is that the communications industries regulator, OFCOM, will be able to assist with this monitoring.
It was also surprising that the CMA was willing to allow the number of network operators to decrease to three. Previously, there had been a perception that it was important to maintain four networks. This was certainly the view in 2016 when Three’s attempted merger with O2 was prohibited. This decision was made by the European Commission (EC). However, the CMA raised serious concerns to the EC and when the merging parties offered behavioural remedies argued that these were:
materially deficient as they will not lead to the creation of a fourth Mobile Network Operator (MNO) capable of competing effectively and in the long-term with the remaining three MNOs such that it would stem the loss of competition caused by the merger.
Why has the authorities’ attitude towards the merger changed?
So why has there been a change of stance in this latest attempted merger in the mobile phone sector?
One explanation is that the market has fundamentally changed over time. The margins for network operators have declined, network usage has grown and there has been a lack of investment in expensive 5G technology. This would certainly fit with the CMA’s desire to use the remedies to facilitate network investment.
A second possible explanation is that the CMA has recently faced criticism from UK Prime Minister, Keir Starmer (see third Guardian article below). In a speech at the International Investment Summit in London in October 2024, he said that
We will rip out the bureaucracy that blocks investment and we will make sure that every regulator in this country take growth as seriously as this room does.
In response to this, the CMA has indicated that in 2025 it will review its approach to mergers, ensuring that only truly problematic mergers don’t proceed, and reconsider when behavioural remedies may be appropriate (see final CMA link below).
The CMA’s decision in the Vodafone-Three case certainly demonstrates that it is now willing to accept behavioural remedies when there is a regulator in place to support the subsequent monitoring.
It will be interesting to see how this merger affects competition in the mobile phone market and, more generally, whether the CMA starts to implement behavioural remedies more widely, especially in markets where it would have to do all the subsequent monitoring.
Articles
CMA reports, etc
Questions
- Why is it beneficial to have MVNOs in the market for mobile phone services?
- Why is it important that MVNOs have a choice of mobile networks to supply their retail mobile services?
- How do you think the other mobile network operators will react to the Vodafone-Three merger?
- Compare the relative benefits of blocking a merger with requiring merging companies to adopt certain remedies.
