Mobile markets need consolidation

Emeka Obiodu/Ovum
11 Mar 2014

Over the past three decades, competition has been largely responsible for lower prices and better value for telecom customers. This success story can be attributed to the decision to deregulate and liberalize the market while privatizing the former incumbents.

However, there are now examples that show competition is increasingly becoming an obstacle to investment. European telcos look resignedly at the healthier competitive landscape in North America. In many emerging markets (such as Rwanda), telecom prices have become too low to justify a business case for the rollout of multiple 4G networks. In other countries (such as India), the presence of too many competitors has created a spectrum shortage, which has hampered network performance.

If the industry is to make the $1.7 trillion investment in mobile infrastructure that the GSMA claims is required by 2020, then it is time to strive for a more pragmatic balance between competition and investment.

A lightening of the regulatory burden will benefit European telcos

European telcos like to bemoan the hyper-competitive telecom landscape that they face. In 2013, Europe had approximately 180 mobile operators that each served an average of 6 million subscribers and generated $1.2 billion in annual revenues. In contrast, in the US, the four main mobile players controlled approximately 94% of the market, served an average of 87 million subscribers each, and generated approximately $50 billion in annual revenues.

In an industry that requires economies of scale, it is clear that European telcos need a lightening of their burden. At Mobile World Congress 2014, many of the telcos’ complaints were focused on competition authorities for delaying proceedings on M&A activity in the region. European telcos told us that everyone is waiting for the outcome of the proposed E-Plus and O2 merger in Germany. If it is approved and thus leads to a reduction from four to three players in Germany, it will be a signal for further market movements.

On the fixed telecom side, it is now largely accepted that the economics support only a few – and in many cases just one – infrastructure provider. However, for mobile, the ideal for regulators is still for at least four market players. Piecemeal tweaking has allowed telcos to pool resources (such as the Deutsche Telekom/Orange procurement deal) or share networks (such as the joint build-outs of 4G network in the UK).

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