Ofcom CEO Sharon White has said the British regulator considers four mobile network operators the ideal number for the British market and that there is emerging evidence that consolidation elsewhere in the European Union had led to price rises.
Ofcom CEO Sharon White has said the British regulator considers four mobile network operators the ideal number for the British market and that there is emerging evidence that consolidation elsewhere in the European Union had led to price rises.
White’s comments, made in a speech at the London School of Economics, come as the European Commission (EC) is in the early stages of its review of CK Hutchison’s (SEHK:0001) merger of O2 and Three, which would reduce the number of UK mobile operators from four to three.
She noted that the tie-up would not only cut the number of players in the UK market, but also remove “competitive new entrant” Three as an independent provider.
Referencing a speech by Competition Commissioner Margrethe Vestager in New York last week, White pointed to research suggesting consolidation in mobile can lead to higher prices for consumers, and not more investment per subscriber.
The EC’s stance towards telecoms mergers appears to have hardened since Vestager took over the competition unit. In September, TeliaSonera and Telenor abandoned a plan to merge their Danish mobile operations following opposition from the EC.
The previous administration, led by Joaquín Almunia, had allowed four-to-three mobile transactions to complete in Austria, Ireland and Germany.
Evidence of rising prices
White cited evidence from the Austrian telecoms regulator that mobile prices have risen 28% since the number of network operators in the country fell from four to three in 2013.
Echoing Vestager, White rejected operators’ claims that consolidation led to more investment.
“Our analysis of a dozen countries, inside the EU and beyond, shows no relationship between consolidation and investment,” White said.
She said telcos argue profit margins in the UK are too low, and that they need more scale to invest, but was dismissive of the concept of ‘market repair’ and noted: “Even at a time when UK operators are investing billions to roll-out 4G, they are maintaining a healthy average cashflow margin of more than 12%.”
The chief executive said Ofcom’s experience was that competition, not consolidation, drove investment and delivered low prices.
British antitrust regulator the Competition and Markets Authority (CMA) believes that it, rather than the EC, should review Three-O2 and has asked for it to be referred.
The EC, which has not referred any telecoms mergers to member state regulators in recent years, has until 30 October to decide whether or not to refer the case.
Convergence could damage competition
White also touched upon BT’s fixed-mobile convergence play to acquire EE from Deutsche Telekom and Orange.
She said that in evidence given to the CMA, which is reviewing the takeover, Ofcom highlighted the possible weakening of mobile as BT – which owns spectrum and has an MVNO – would no longer be a new entrant in its own right.
She added that BT may have an incentive to favour EE over other mobile operators in providing network services.
Commenting more broadly on convergence, White said “we are seeing evidence that customers are less likely to switch providers, which could dampen competitive pressure”. For operators, reduced churn is one of the reasons convergence is so attractive.
Notable by its absence in the speech was Openreach, BT’s infrastructure division. BT’s rivals have been lobbying heavily for the unit to be split off from the group.
White’s only mention of Openreach was noting Ofcom’s requirement for BT to create the unit in 2005.
She said at present there was “a healthy number of providers and new entrants to keep everyone on their toes” in UK telecoms, and highlighted that “BT has the lowest broadband share of any incumbent operator among major European countries”.
White asked: “Having basked for many years under the warm glow of vibrant competition, could we soon feel the chill wind of consolidation?”
Operators may be more concerned about the chill wind of regulation.
