Assessing the Impact on Competition of the Proposed Merger Between Movistar El Salvador and Claro

By Dr. Bruno Soria

The Situation

In 2019, América Móvil announced that it was acquiring Telefónica’s operations in El Salvador (where they trade under the brands “Claro” and “Movistar”), subject to approval by the Superintendencia de Competencia (Salvadoran Competition Authority).

At the time the prospective merger was announced, Claro was the leading operator in the country with a 53% market share of fixed broadband, a 31% share of the mobile market, and a 30% share in pay-TV. Movistar was the third operator with a 28% mobile market share and very small shares in other markets. Their main competitors were Tigo (26% share of fixed broadband, 27% mobile, and 55% pay-TV), Digicel (14% share of mobile), and some smaller fixed broadband and pay-TV providers.

NERA's Role

NERA was retained by Digicel to provide expert testimony before the Superintendencia de Competencia assessing the proposed merger’s impact on competition. The expert report begins by describing the status and structure of the Salvadoran markets, where only the mobile market enjoys effective competition despite the problems caused by the scant amount of radio spectrum awarded to mobile operators.

We also analyzed the impact of the proposed merger on the markets, finding it would increase the concentration of market shares and spectrum holdings well above the thresholds commonly employed to diagnose dominant positions. This higher concentration in all telecommunications markets would give Claro the ability and incentive to engage in anticompetitive activities against its smaller competitors, which would likely result in sizable price rises, among other effects. Our report then modeled the cost function of mobile operators in El Salvador from public accounts data. We then calculated the likely cost savings that Claro could generate thanks to the merger and found that they were not large enough to offset the expected upward price pressure.

To finish, our report analyzed the potential remedies the Competition Authority could impose on Claro to mitigate the merger’s anticompetitive effects. We reviewed the remedies imposed in a large number of similar cases in Europe and the Americas and how well they fit the situation of the Salvadoran telecommunications markets.

The Result

The results of our analysis showed that the proposed merger was likely to produce strong anticompetitive effects in Salvadoran telecommunications markets, but that there were a set of well-tested remedies that were likely to prevent them.

The Superintendencia de Competencia accepted most of our arguments in its ruling, and imposed remedies on spectrum and other aspects of the acquisition as a condition for merger approval, thus protecting our client from becoming marginalized in the market.