One of the uses of Ofcom’s 2010 Communications Market Report, whose publication I blogged about a couple of posts ago, is its publication of reliable stats on the state of the different market segments in the telecoms industry, including the mobile one. Over the past year, mobile has been a particularly interesting example of what happens next to markets in a pure state: market policy in the UK had striven for a competitive model and, outside of the new 3G operator, 3 UK, the other four operators had grown to a situation in which they were of a roughly, not exactly but nearly, equivalent size.
The result? Further growth in a market which has already 1.3 connections per person, via the addition of new subscribers, became increasingly difficult and more expensive, not in the short-term (it being easy to run short-term loss leaders) but to retain them in the long-term (although O2 seems to have done rather well out of its now-expired iPhone exclusivity agreement). Furthermore, regulatory action in the mobile sector has seen falling prices (as confirmed in the 2010 CMR, Figure 5.39 shows a 22% fall in average monthly retail voice revenues per mobile subscription between 2004 and 2009, while Figure 5.38 seems to confirm that mobile retail revenues have peaked).
All good for consumers – but somewhat less good for the operators. The effect has been for operators to seek merger – in the UK, T-Mobile and Orange have merged to form everything, everywhere; a merger which was allowed with fast-track approval and scant scrutiny at the EU level despite the wishes of consumer and indeed competition organisations in the UK.
Figure 5.46 of the 2010 CMR provides a current estimate of the market shares of the five mobile operators, which look as follows:
The merged everything, everywhere organisation thus has a market share of 42% – a market dominant operator has been created as a result of regulatory lack of interest among the competition authorities (at the EU level) in intervening in mobile operators’ wish for the market to reflect more of their interests – and in contravention of the direction of mobile market competition policy which had been to create the sort of perfect market that has now been disrupted.
The above figures include mobile virtual network operators, of which the most significant is Tesco Mobile (which uses O2) and Virgin Mobile (which uses T-Mobile) – though there are several others. Tesco Mobile has ‘more than 2m’ customers (p. 19), while Virgin Mobile has 2.2m pre-pay and 1m contract customers (p. 8). Tesco Mobile’s market share is about 2.5%, taking the share of O2 of direct subscribers down to 25.4%; that of Virgin Mobile about 4%, taking T-Mobile down to 17.5% direct subscribers (and everything, everywhere to 38.6%). Actually, network sharing arrangements between O2/Vodafone and T-Mobile/3/Orange have essentially split the mobile market into five (now 4) operators but just 2 networks.
An interesting perspective of what happens to a competitive market when it represents too good a deal for consumers and (therefore) an insufficiently profitable one for operators: the natural trend for those most affected (T-Mobile and Orange are the only two operators to have seen a decline in market share between 2004 and 2009) is to move away from competition and to seek market dominance not by organic growth but by merger.
The response of the other operators will be interesting with 3, the smallest operator, looking vulnerable as a relation of its size, with Vodafone, which merged with 3 in Australia as the two smallest operators in that market, already having been rumoured as a potential buyer, although its affiliation to the smaller of the essentially two networks which operate in the UK may help it fight off any such advances.