The ironies in the mobile telco market are staggering. And the recent EU ruling blocking the purchase of O2 by EE has many contradictions.
I believe that the UK mobile network market is more in need of repair than extra competition. Well-functioning markets with three players exist in other countries, where prices are competitive and service is better than in the UK.
The paradigm that the more players there are the better it is for the customer is an overly simplistic discourse and arguably against the customer’s best interests in this case.
The UK is a tough mobile market
The first irony is that the UK is a relatively low profit telco market despite assumptions that the companies are loaded. O2 is the strongest mobile brand in the UK, with the highest Net Promoter Score, stoical customer loyalty and a growing customer base.
Yet Telefonica wants to sell it. Why? Because the UK is one of the least profitable places in the world for mobile network operators. Driving revenues down as a result of the price/competition assumption is a bad thing when that market is more fragile than it looks.
The second irony is that the UK is already a highly competitive market. Customer bills on telecommunications have been falling for five years, yet it is very strongly regulated. This is mostly because BT has such a dominant position on broadband lines. Yet the BT/EE merger was allowed - this merger was not. Even Alanis would correctly acknowledge the irony of that one.
Irony number three is that the customer and the government want a world-class mobile service, yet make it seriously hard to deliver.
The UK provides poorer service on coverage and quality than many overseas markets, as frequent travellers know. Lack of investment is one reason, but another is the challenging regulatory environment on masts here. Masts over five metres are not allowed and other restrictions of access exist. So you need thousands more masts which creates a more expensive infrastructure and, arguably, a more unsightly one.
I saw three chief technology officers during my tenure at Vodafone UK, all of whom had successfully run networks in other countries, almost brought to their knees by the challenge of operating a network in the UK. A less profitable sector will make it even harder. A government that wants 98% coverage as well as making it really hard to deliver is contrarian. That having been said, George Osborne is driving change through parliament as we speak.
BT is now a giant among dwarves
Irony number four is that the customer cares about quality, yet price is the primary focus. Customers want calls that don’t drop, clear lines, fast data speeds, UK-based quality call centres, good coverage everywhere they go.
Reducing companies’ ability to invest is the enemy of good service and innovation and this is more likely with no merger. Customers are served well by things other than low prices.
Irony five is that four players create a weaker market structure than the three we could have. You are left with the heavyweight BT and three smaller, similar also-rans. The merger would have created two networks of equal oomph, with Vodafone as a smaller player. Vodafone would then have to figure out how to be the Waitrose of the market and that could be a good thing for customer choice.
Irony six is that Vodafone opposed the merger because of the difficulty of unravelling the mast-sharing agreement with O2 - not because it wanted more competition.
This tricky pact arose because O2 and Vodafone needed to battle the head start granted to EE to launch 4G four years ago by the government. BT doesn’t like it because it would create a more equal competitor, and of course EE and O2 look self-interested if they argue any customer advantages.
And the final irony is that although I have been a customer champion in all my previous roles, I would have been very sad to see O2 go. Wherever Three have bought a telco, they have rebranded it Three. And it is a crying shame that a brand so carefully tended and built can disappear overnight.