GSMA Competition policy in digital age final project. Team: Santiago Botero, Humberto Cepeda, Enrique Nurivan González.

1. UNILATERAL EFFECTS IN
MERGER CONTROL
Santiago Botero Sierra
Humberto Cepeda García
Enrique Nurivan González Reyes
[IFT Group – Mexico]
Competition Policy in Digital Age.
GSMA Capacity Building course.

2. DISCLAIMER:
The views and opinions expressed in this article are those of the authors and
do not necessarily reflect the official policy or position of Federal
Telecommunications Institute or any agency of the Mexican government.
Examples of analysis performed within this article are only examples.
Assumptions made within the analysis are not reflective of the position of
Federal Telecommunications Institute or any Mexican government entity.

3.  Background of merger control in Mexico.
 Merger Control (Theory)
 Background of case study.
 Case study
INDEX

4. BACKGROUND OF MERGER CONTROL IN MEXICO
Competition authorities.
Images from:
https://goo.gl/YYmN1P
https://cofece.mx/cofece/index.php
http://www.ift.org.mx/
Because of the constitutional reform of 2013, two bodies were created with powers to
apply the Competition Law, due to the principle of specialization. On the one hand,
the Federal Telecommunications Institute (IFT) as the authority in the
telecommunications and broadcasting sectors; on the other hand, the Federal
Economic Competition Commission (Cofece), as the authority in the rest of the
markets.
When both authorities claim themselves competent, the competent authority is
solved by an specialized judiciary tribunal in competition and telecommunications.

5. BACKGROUND OF MERGER CONTROL IN MEXICO
Schemes for merger notification.
Images from:
https://goo.gl/ibrrY6
https://goo.gl/3hJWbX
In accordance with the Competition Law:
• Firms directly involved in a merger shall notify it (section 88), in order for the IFT or Cofece to
authorize it, when the thresholds established by law (section 86) are exceeded;
• There are two procedures for merger notification:
Traditional
(section 90)
The competition authority may require
additional information to the firms involved
and any other related to analyze the
merger effects. Firms may submit
proposals for remedies.
Shortened
(section 92)
In cases where it is "notorious" that the
merger is not intended to harm the
competition process. Competition
authority must decide whether the
"notoriety" requirement is met within a
period of fifteen days.

6. BACKGROUND OF MERGER CONTROL IN MEXICO
Schemes for merger notification.
In addition, the Federal Telecommunications and Broadcasting Law:
• Provides for a special and temporary regime for merger notification, as long as there is a
"preponderant economic agent" in the telecommunications and broadcasting sectors.
Merger notice
(transitory section ninth)
The firms involved must submit to the IFT a written notice in which
they notify that they made a merger and that it meets the
administrative requirements required by Competition Law. However,
such concentrations will be subject to an investigation to determine
whether there is substantial market power.

7. BACKGROUND OF MERGER CONTROL IN MEXICO
Classifications of resolutions
In accordance with section 90, sub section V in fine, the
competition authority may either:
• Authorize the merger;
• Object the merger;
• Subject the merger authorization to the fulfillment of remedies
(proposed by the parties or by the competition authority)

8. POSSIBLE EFFECTS OF A MERGER
• Mergers are common practices on markets which can have positive outcomes,
for this reason many mergers are not challenged by competition authorities:
take advantages of efficiencies, exploit complementarities, discipline managers,
etc.
• Depending on the premerger HHI and the change on it because of the
merger (it is based on the market shares of a firm; the increase is more
pronounced with higher market shares, reflecting that a bigger firm can
harm the market more easely than a shorter one), there are “safe harbours”.
• It is unlikely that a concentration has anticompetitive effects in Mexico if :

9. POSSIBLE EFFECTS OF A MERGER
• However, some firms may have an incentive to acquire control of their
competitors in order to increase their market power. Doing so, they can exercise
unilateral effects that are a concern for competition authorities.
• Taking control of a competitor in the same market (horizontally, if we think markets like a “river”
or a “chain”), the firm may gain enough power that can harm costumers.
• We use the SSNIP test on a hypothetical monopolist in order to have a definition of the
“market” (both in product and geographical terms); then, we can analyze whether the
specific merger proposed can increase the market power of the merged entity on that
market.
• The SSNIP test considers the “diversion” of customers on the products: the hypothetical
monopolist consider the “substitutability” on de demand side. It is important because you
can be a monopolist on one product whitout having the possibility to raise prices in it if
your consumers divert themselves to other product where you can not control.
• Taking control of an essential input (“upstream”), the firm may illegimately displace competitors
in the final market.

10. POSSIBLE EFFECTS OF A MERGER
• There are also coordinated effects. Maybe the merged entity can not exercise
market power in itself, but the market has some characteristics that make it
susceptible to collusion: frequent and small sales, disperse consumers, barriers
to entry, etc. The merger will reduce the number of participants, increasing the
probability of sustain a cartel.
• There can also be related board directories, when the same people take
decisions in different firms because of the stock structure prevalent in the
market.
• Innovation make collusion unsustainable.

11. RULE OF REASON
• In a specific merger there can be both procompetitive and anticompetitive
effects.
• Efficiencies must be
• Claimed by the requesting firms and assessed by the competition
authorities.
• Merger specific.
• Pass through to the customers.
• If these efficiencies exceed the possible anticompetitive effects, then the
merger should be allowed.

12. BACKGROUND OF CASE STUDY.
The merger consists in the acquisition of between 50% and
100% of the capital stock of Alcatel by Nokia, through public
offerings of exchange of shares in France and United States
stock markets.
Even before the authorization of this merger was resolved in
Mexico, competition authorities in 16 jurisdictions had
already authorized it, including Brazil, Russia, Canada, the
United States and the European Union.
Image from:
https://goo.gl/SP4a3c

13. MARKETS
• Nokia and Alcatel provide equipment and services
“upstream” on the telecommunication sector (in the
infrastructure network market).
• There are three categories of market products:
• RAN (Equipment for radio access on the mobile
networks): by technology: GSM, CDMA; WCDMA (3G);
and LTE (4G).
• CNS (Equipment of communication on the “core”
network): Wireless Packet, IP telephony and software
OSS.
• Services: administrative or professional.
Image from:
https://goo.gl/SP4a3c

14. MARKETS
• IFT evaluated each of the markets enounced claiming that
if there is no anticompetitive effect on the smaller markets
(the least possible aggregation), there are not going to be
on the bigger ones…
• … This is a wrong argument!
• It does not consider the diversion effect (the
substitutability on the demand side) which is the
basement of the analysis!
• Nevertheless, these products are highly specialized. So,
the conclusions are unlikely mislead if did the correct
analyses: there are probably no diversion effect!
Image from:
https://goo.gl/SP4a3c

15. MARKETS
• Technology is evolving in this sector
• The merged entity may acquire a bigger share on an
old technology of RAN, which can not be translated
into new ones.
• CNS for voice telephony evolves with some
replacement of hardware to software and cloud
services
• Markets where analyzed both in global and Mexican
geographical contexts.
• In every market, there are other players who competes
against both Nokia and Alcatel, and in some of them
these players will have bigger participation than the
merged entity (both in Mexico and globally). The main
players considered are the merged entity, Ericsson and
Huawei.
Image from:
https://goo.gl/SP4a3c

16. MARKETS
• In the RAN – CDMA (2G), the merged entity will have the biggest
participation. However, this is an old technology. Is unlikely that the
merged entity could raise prices (demand shrinking will tend to reduce
it) or translate its power on newer technologies.
• In some CNS markets the participation of the merged entity is
insubstantial.
• There are no overlaps on other services in Mexico between the
participants: competitive landscape will no change because of the
merger.
• In the majority of the markets there is a “safe harbour”; on which the
risks of unilateral effects are small (RAN, CNS Wireless Packet –global-,
CNS IP telephony –Mexico-, OSS -Mexico).
• Coordinated effects are unlikely in these markets.
• So, IFT approved the proposed merger in Mexico.
Image from:
https://goo.gl/SP4a3c

17. SOURCES:
For economic theory:
Motta, M. (2004). Competition policy: theory and practice. Cambridge University Press.
https://en.wikipedia.org/wiki/Merger_control
https://cofece.mx/cofece/index.php
http://www.ift.org.mx/
For UCE/CNC-002-2015 file’s public version:
http://www.ift.org.mx/sites/default/files/conocenos/pleno/sesiones/acuerdoliga/dofpift170316101.pdf
For Federal Economic Competition Law:
http://www.diputados.gob.mx/LeyesBiblio/pdf/LFCE_270117.pdf [Spanish version]
https://www.cofece.mx/cofece/images/Documentos_Micrositios/Federal_Economic_Competition_Law.pdf [English version]