Accumulation of consolidation speculation in the UK mobile market brings stimulation to formulation of regulation

Martyn Warwick
By Martyn Warwick

Apr 1, 2022

  • UK regulator decides that sector consolidation would be a good thing…
  • Wants mobile operators to back the notion, which they will
  • It’s what’s known as ‘pushing on an open door’
  • Will reduced competition result in increased prices? You betcha

There’s increasing pressure in the UK for consolidation in the mobile market as 5G services start properly to come on stream. The British regulator, Ofcom, is warning that mobile networks must continue to grow and evolve if they are to meet ever-growing demand of both enterprise and domestic subscribers. According to the regulator’s calculations, mobile data traffic is growing at about 40 per cent per annum, has been doing so for several years past and will continue to do so for years to come. Such is the intensity of demand that Ofcom says predicting growth beyond 2030 is all but impossible even as pressure to provide ever more bandwidth and data-intense services will be relentless.

There are various ways of at least ameliorating some of the problems such as better use of radio spectrum, new technologies such as mmWave, the widespread deployment of small cells and so forth, but Ofcom is also soliciting the views of many of the players in the industry to help define and advise on future national strategy. One of the main areas up for discussion is consolidation that might (and probably will) see the UK’s ‘Big Four’ mobile network operators (MNOs) – EE, Three, Virgin Media O2 and Vodafone, whittled down to three by the merger of any two of them.

Here Ofcom has changed its tune and is “clarifying” its position. Hitherto, the regulator eulogised and defended the competition between Britain’s MNOs, credited it for the UK’s wide choice of service providers and (comparatively) low prices and opposed consolidation of the sector, brooking no change and giving short shrift to those who lobbied for it. Now though, Ofcom has signalled that it is in favour of properly managed and regulated consolidation.

In a new paper, “5G in The U.K.: Calls for Consolidation Grow” Ookla, the fixed and mobile network testing and analysis company, headquartered in Seattle, Washington State in the US, contends: “There is a clear desire for further mobile network consolidation in the U.K… The last time the U.K. market saw mobile consolidation was in 2010 with the merger of T-Mobile and Orange to form EE. Since then, subsequent attempts to drive further mobile consolidation – Three UK’s planned merger with O2 in 2016 – have been blocked by Ofcom and the European Commission. During Three UK’s 2021 results announcement, Robert Finnegan, Three UK’s Chief Executive Officer since March 2020, warned that despite achieving positive results, “the UK market with four operators continues to remain dysfunctional and requires a structural change to improve the overall quality of infrastructure that UK customers should expect.” Evidently Ofcom agrees.

Three UK has been the consolidation cheerleader for quite some time now and, in a response to Ofcom’s request for input, told the regulator that the integration of MNOs would be the best option because many European countries have three-player markets that work very well. It added that even in four-player markets, such as Denmark and Sweden, there are only three players ‘really’ because of permitted network sharing. Three’s contention and belief, shared by other mobile operators, is that the UK lacks cutting-edge mobile network infrastructure because having too many players in the market has resulted in patchy investment and lucrative area with good coverage and unattractive less profitable areas with poorer coverage.

Robert Finnegan again: “Moving from four to three mobile players in the UK would mean better, smarter investment in the networks, which would, in turn, improve the quality and scale of connectivity in Britain and would unleash more competition. Ultimately, this would be better for customers who would benefit from more choice and better deals.” Well, maybe and maybe not. There is plenty of evidence from around the world to show that reduced competition can often result in worse customer service and increased bills. In fact, given the current runaway rate of inflation and exorbitant price rises well in excess of it that are being applied apply to just about every product and service in Britain, it’s a racing certainly that mobile tariffs will rise soon after consolidation taking place.

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