To Three or not to Three, Is That The Question?
The proposed acquisition of O2 by Hutchison, owner of Three, is making the headlines at the moment. The EU regulator is due to announce whether it will allow the deal to proceed later in the spring, and the lobbying on both sides of the argument is well underway.
Ofcom has already come out against the deal, arguing that the UK market needs a fourth mobile operator to be competitive. There is evidence to support their case: in countries where the number of operators has reduced from 4 to 3 the prices paid by consumers for mobile services have gone up.
Hutchison has responded by promising to let other companies access and use its network, enabling more Mobile Virtual Network Operators (MVNO’s) to enter the market and help keep prices down. David Dyson the chief executive of Three sets argument is set out in the FT (though you need to have a paid subscription to the FT to read it).
Ofcom's arguments are based on a prior assumption: that there is a distinction between the fixed and mobile telecommunications market. Therefore, when considering whether the acquisition is “good for competition” Ofcom’s analysis is restricted to the mobile market on its own.
With respect to them, I think that the terms of the debate are wrong. The real driver of improved services and reduced cost in communications is innovation in technology, and technology does not respect market boundaries. Within 3 years, the distinction between fixed and mobile telephony will be blurred to the point of irrelevance.
For example, is a telephone call made over a wifi connection fixed (because the wifi access point is connected to a broadband line) or mobile (because you’re making it on a mobile phone)? Is a call made using a 3G desk phone a mobile call (because it uses the mobile transmission network) or a fixed call (because the phone has a geographic DDI, not a mobile phone number)? All of the major telecoms providers (and Google with Project Fi) are developing new services that blur the traditional distinctions between fixed and mobile.
The future of telecommunications is in the convergence of fixed, mobile, voice and data services. The economics of converged services are compelling, as I have outlined here. It is overwhelmingly cheaper (and better for customers) to provide wifi, mobile data, broadband and telephony through the same infrastructure and using the same service and support organisation than it is to provide them separately.
That’s before we’ve even got the convergence of communications and content - Sky are champing at the bit to launch their own mobile MVNO, so that customers can get fixed, broadband, television and mobile services all in the same place. BT launched combined fixed, broadband, tv and mobile offers last year using an MVNO with EE, which will only accelerate now that the full acquisition of EE has been approved.
In this wider context, it seems to me that the real competition question is whether there is a strong market for the provision of converged communications? All of the current players are actively working to put together a converged capability, and the major obstacle to doing so is the enormous cost of building and maintaining a national mobile transmission network.
In which case, the best way to enable greater competition is to enable existing fixed operators to access existing mobile networks at wholesale rates, and at the other side of the same coin, to look very hard at the position of Openreach.
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