Vodafone, O2 and Everything Everywhere face further obstacles in implementing their proposed mobile wallet and advertising platform joint venture, dubbed “Project Oscar”, as a result of an announcement by the European Commission (Commission) last Friday. The Commission’s decision to open an in-depth “phase two” investigation means not only that a final decision on regulatory approval will be significantly delayed, but also that the threat remains of the Commission blocking the venture altogether. Here Alex Haffner, senior associate at law firm SNR Denton runs us through the main points.
What is Project Oscar?
operators (MNOs) mentioned above announced that they were getting together to form a new joint venture to develop a set of technical standards facilitating mobile payments across their networks and compatible devices. 3 (the other mainUKnetwork) was later offered the chance to join the venture, but declined the opportunity, apparently because of the lesser equity share it would have received.
The MNOs intend to license technology to banks, retailers and other companies enabling those parties’ customers to pay for goods/services via their mobile phones (so-called “mobile wallets”). Payments would be made either by accessing the mobile internet or through the use of Near Field Communications (NFC) enabling the user to swipe their handset across a special reader.
What has prompted the Commission to instigate a more detailed investigation?
Under EU merger control rules, the Project Oscar joint venture qualifies for oversight by the Commission – EU approval is therefore a necessary precondition for the joint venture to go ahead.
The MNOs formally notified the joint venture to the Commission for competition clearance on 6 March 2012. This prompted an initial investigation by the Commission. It issued extremely detailed questionnaires to interested parties seeking their views as to the likely effects on competitive conditions in those markets impacted by the venture, notably those concerning mobile payments and advertising.
A number of parties have been particularly vocal in their criticism of the venture parents’ plans. They argue that Project Oscar represents, in effect, an attempt to use their near 90 per cent share of retail customers in theUKto exert a stranglehold on mobile payments technology. For their part, the venture partners have consistently argued that they are committed to creating an open payments platform and to license access to all third parties on fair and non-discriminatory terms.
From their decision to open a phase two investigation, it is clear that the Commission is not (yet) convinced by the arguments put forward by the joint venture. In particular, it appears to have been influenced by the fact that mobile payments are, in the EU at least, still very much in the development phase with a number of competing offerings seeking mass market adoption. Against that background, the Commission is concerned that the joint venture parents may have the commercial ability and, more importantly, incentive to block competitors from offering their own mobile wallet services toUKmobile customers.
Next steps and likely conclusions
The Commission now has just over four months to reach a final decision on whether to grant competition clearance. All parties who could be affected by the joint venture have an opportunity to participate in that investigation and should think carefully about whether and, if so how, to do so.
The outcome of these further investigations may be that the Commission is persuaded the joint venture will have no adverse impact on competition. A second, more likely, outcome, though, would be for the Commission to grant clearance only on the basis of formal and binding commitments (known as “undertakings”) from the joint venture parents which are sufficient to mitigate any competition concerns identified by the Commission. Given the obvious focus of the Commission on encouraging open competition between rival mobile payments providers, one such concession would be for the parent companies to guarantee open access to their networks to competing payment technologies.
Finally, if the Commission cannot find appropriate undertakings or the joint venture parents cannot accept those required of them for commercial reasons, a third option would be for the Commission to block the venture altogether.
This would throw the battle for the control of consumers’ mobile wallets right back into the open.