Competition policy should help markets function efficiently and competitively, protecting consumers while also creating the conditions to foster investment, innovation, and long-term growth. In technology markets characterized by rapid evolution and high investment requirements, the application of competition policy should consider not only the current market structure, but also its evolution, competitive dynamics, and the future benefits that innovation can generate for consumers and businesses.
A competition policy approach based on the dynamic efficiency of markets is needed, one that conducts a comprehensive assessment of consumer welfare beyond short-term prices and properly incorporates factors such as investment, innovation, quality, resilience, and technological development as essential drivers of market performance and consumer benefits. This approach should enable merger transactions to be assessed from a holistic, dynamic, and long-term perspective, taking into account both their potential effects on competition and the efficiencies and investment and innovation capabilities they can generate.
The European Union Case: Scale, Investment and Competitiveness
The European Union faces a structural challenge of slowing economic growth, declining competitiveness, and a widening technological gap compared with other leading economies. In this context, it is more necessary than ever to develop a European telecommunications sector with sufficient scale in relevant markets to undertake the most pressing investments and innovations in connectivity, technology, and security.
At Telefónica, we propose that the European Union move away from the static approach to merger assessments based on short-term price effects and the artificial creation of competition. Instead, it should adopt a new approach to reviewing and applying its competition rules, based on the theory of dynamic market efficiency. This implies evaluating not only the effects of a transaction on prices and market structure in the short term but also undertaking a dynamic analysis that considers the supply side and the production function of each industry and market to understand the factors on which companies compete. This approach provides a clear path toward achieving the broader objectives set out in the Mission Letter.
Because scale is a critical factor for the sector, Telefónica advocates for a “technology social contract” that links greater consolidation and scale with stronger investment and innovation commitments. In this way, the efficiencies resulting from mergers can be translated into better networks, services, and technological capabilities for citizens and businesses, helping Europe regain leadership in connectivity and technology while strengthening its competitiveness and technological sovereignty.
Dynamic Efficiency: The Key to Investment and Innovation
Review of the Merger Control Guidelines
Investment-Friendly Market Structures in the Telecommunications Sector
Our Proposal
Focus on Dynamic Efficiencies
Consider dynamic efficiencies such as innovation, quality, and long-term investment cycles, among others, rather than focusing on short-term prices and market share expectations at the national level.
Stop Promoting Artificial Competition
End artificial and asymmetric support for new entrants after 25 years of competition in today’s highly competitive market.
Reduce Barriers to Market Consolidation
Allow market-driven sector reorganisation and adopt a more flexible and secure approach to horizontal agreements that support innovation.
