In his mobile blog, Mark Heath, of Unwired Insight, discusses the latest developments with Orange and T-Mobile in the UK.
Consolidation of mobile networks in the UK is long overdue and I’m relieved to see that the combination of Orange UK and T-Mobile UK, known as Everything Everywhere, is rapidly moving into implementation. In an attempt to remove duplication, Everything Everywhere announced that it would cut 7.5% workforce (some 1,200 jobs), and further cuts are likely to follow. Orange and T-Mobile have now officially launched their joint network. Actually the networks are still distinct, but this allows the customers of one network to roam onto the other one free, although it currently applies only to GSM. Nevertheless, these are the first stages of what will be a consolidation of two large mobile networks in the UK.
While some in the industry see this to be an isolated case, this may be premature. Further network consolidation may be the only realistic options for operators to roll out next-generation networks profitably.
There has been an underlying assumption among regulators and politicians that competition is always good and that a large number of mobile network operators in the market will always lead to more positive outcomes than a small number of operators. So in the UK, five 3G operators were licensed and, unlike other countries, such as Germany, early market consolidation did not occur.
It is true that competition has imposed downward pressure on prices (and ARPUs), and has encouraged innovation in branding and services. However, there is little evidence to suggest that it has helped the widespread deployment of high-quality 3G networks and services. Since the launch of 3G services in the UK nearly seven years ago (in March 2003), network roll-out and service take-up have been disappointing. Even now, 3G coverage of the population still substantially lags the 99%+ 2G coverage of the population offered by UK mobile network operators.
So, while LTE vendors have high hopes for LTE, you have to ask what will be different this time. What will encourage mobile operators to improve coverage, increase capacity to support rapid traffic growth and deploy LTE networks on a widespread basis, when they haven’t done so with 3G networks?
New thinking and new approaches are required. Without the prospect of a significant increase in ARPUs – and there’s no sign of this as yet – mobile network operators, under pressure from investors, will not be keen on a substantial increase to their capital investment as a proportion of revenue. Network consolidation may be the only viable way forward to finance major LTE deployment. While the opportunity for Everything Everywhere is clear, huge questions remain on the next moves for Vodafone and Telefónica O2.