UK heads for a mobile network operator duopoly

UK mobile network operators are dwindling due to mergers and agreements that stifle competition. Businesses must consider the effect this network consolidation will have on mobile services available to them and the prices they will have to pay.

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The number of UK mobile network operators is dwindling rapidly due to mergers and operator agreements that stifle competition. The question for businesses is what effect this network consolidation might have on both the mobile services available to them and the prices they will have to pay. And if the implications are negative, how can they be avoided or mitigated?

First, the background: Until quite recently, the UK had nine physical mobile phone networks, four 2G and five 3G. It will soon have only two access networks left, following a series of mergers and network-sharing deals.

Two of the UK's five mobile network operators, Orange and T-Mobile, are in the process of merging. The new combined company, called Everything Everywhere, has inherited T-Mobile’s 3G network-sharing agreement with 3UK. Meanwhile, O2 and Vodafone agreed upon a pan-European network-sharing deal in 2009; in the UK this includes the two sharing their sites, masts and antennae via management company Cornerstone.

So, despite persistent rumours that 3UK is a takeover target, we will most likely have two access networks by later this year, each providing both 2G and 3G service. We are unlikely to see mobile phone brands affected until 2012, when Everywhere Everything is expected to introduce a single new brand.

The Orange/T-Mobile merger was quickly approved by the European Commission, with a couple of provisos. One proviso was issued because the new company would have 60MHz of overlapping spectrum in the 1800MHz GSM band. This could make it the only UK player able to offer next-generation 4G LTE (Long Term Evolution) mobile data services in the medium term, so in order to get EC approval Everything Everywhere will sell off a quarter of this spectrum.

The other proviso was to revise its agreement with 3UK to prevent the new company from terminating the network share early in order to eliminate a competitor. The 3UK/T-Mobile joint venture, which is called Mobile Broadband Network Ltd, manages the front-end access network (i.e., the masts and associated infrastructure), but the two companies retain their own separate core networks.

Drawbacks to mobile network operator consolidation

In theory, all this consolidation should mean better coverage for users, because each of the four remaining network operators immediately has the use of more base station sites. The danger is that, by weakening competition, it could also push prices up.

Indeed, economic researchers writing at VoxEU.org suggest that when you roll in the European Commission’s determination to reduce mobile termination rates (MTRs), which are the fees that networks charge each other for accepting incoming calls to their subscribers, the only benefit will be higher profits for the mobile networks. They say customers could see fewer cheap calls. Jobs will also be at risk, with 1200 employees of Everything Everywhere told last year that their positions were in jeopardy.

For buyers of mobile telecoms services -- whether they are end-user businesses, or even the MVNOs (mobile virtual network operators) that resell phone services, such as Virgin Mobile, Tesco Mobile and BT Mobile -- the implication is a less competitive market. Less competition means less incentive for the networks to offer business-grade services and invest in improving their networks, especially on the mobile data side.

That, in turn, means more work for the telecoms regulator, said Andy Buss, service director at market research company Freeform Dynamics.

“Regulation has to ensure that they don’t cut investment,” he said. “If we look at what’s happened with consolidation in the rest of Europe, regulation has become more important.” He suggests that a long-term option might be ADSL-style unbundling, where the regulator insists that the access networks be opened up to competition, with other suppliers able to install their own core equipment and sell mobile services.

Of course, with two access networks shared by four network operators, and an existing tier of MVNOs already reselling capacity on those networks, the arguments in favour of unbundling are not as strong as they were for ADSL, where BT largely monopolised the last mile.

So what can network and comms managers do in the short to medium term to protect their organisations from consolidation among the mobile networks? One important thing is to shop around. Most large businesses already do this, sometimes playing two or three of the networks’ business divisions against each other.

Small and mid-sized businesses can do this too, but should also consider striking deals with smaller, more responsive suppliers such as business-grade MVNOs and mobile service providers, suggested Andy Buss. That can help them get the level of service and visibility they need and also take advantage of better network coverage, while hopefully avoiding lock-in and profiteering.

--Bryan Betts is a UK-based freelance journalist specialising in business and technology. Read about him at http://www.bryanbetts.com/.

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