Decline and fall of UK Mobile Network Competition in 5 years?
My most recent study is pointing to a significant decline in effective UK mobile network competition (as we’ve known it) within the next 5 years and the current regulatory framework is quite incapable of effectively dealing with this. This must be a worry to those who believe that “competition” is a necessary spur to timely investment in network innovation and coverage.
The mobile phone market is in transition from the traditional telephone and SMS service to a mobile high-speed “data access service” to the Internet…it is a revolution ignited by the outstanding Apple i-phone…and is set to really accelerate away over the next 3-4 years.
What most characterizes a good Internet access service is “data speed” and what is most likely to kill that data speed over mobile networks is the sort of rise in data capacity demand now taking place. Where the mobile networks are at a particular disadvantage relative to the fixed wireline networks is that there are no easy technology fixes in the pipe-line… like local fibre optic cable. That is not to say that next generation mobile technology, like HSPA and LTE, will not make a big difference…but they are simply insufficient on their own and create their own set of new problems.
These new problems arise from the way they spread (or more accurately do not spread) the super fast data speeds over a base station coverage area when the network becomes properly loaded. This will not show itself to users at the beginning when the 4G networks are new and therefore largely empty. But as the installed base of 4G devices grows so will the traffic on the network and when they are properly loaded then speeds for millions of users will crash…and just to make things really confusing…mobile network operators’ software can juggle this misery around in almost limitless combinations. The result will be coverage maps that are completely useless. The fact that a user is within “coverage” could mean a respectable 10 Mb/s access speed to a paltry 10 kb/s in the busy periods.
Meanwhile on the mobile handset side there is a growing disconnect with what the global handset suppliers are fitting into their mobile phones (performance, technology and frequency bands) and the network performance, technology and frequency band of the customer’s mobile network at the location the user happens to be using their mobile.
If there is no longer is any reliable information to allow consumers to make informed choices between the speed “quality of service” of mobile broadband access networks then the competitive pressure driving mobile operators to make better networks will have become very muted if not totally ineffective.
The squeeze on mobile network competition is not just bearing down at the retail interface but is also being eaten away from below through creeping network sharing. The huge cost pressures the mobile network operators are under is driving this. For many years regulators have blessed the sharing of radio mast structures…since mobile masts are never popular. This has since moved onto sharing of buildings, power supplies, air conditioning and back-haul links. Where things have reached today is that what was once a 5 player competitive network market is quickly consolidating down to just two base station site groupings (EE and H3G in one group and Vodafone and O2 in the other group) and providing the fibre backhaul over a large part of the country is a monopoly provider BT. This is a far cry from a vibrant competitive infrastructure market that existed 10 years ago. The trend line is clear…the current competition model is a fine label on a tin whose useful content has largely drained out.
This is leading some commentators to speculate that the best outcome is to let the mobile network market just gracefully consolidate down to a single monopoly operator that Ofcom could regulate – with huge amounts of retail competition providing the entire competitive stimulus that is needed. But this would be a huge mistake. We know from our mobile history that monopoly mobile network operators under invest and under perform… and no amount of retail competition will make a poor mobile network anything more than a poor mobile network.
The challenge is to re-invent mobile network competition…and the only solution my research has come up with is switching on national roaming at the wholesale level. In a wholesale model it is my mobile operator and not me that pays for that roaming connection. These cross network roaming changes are then netted out between the mobile network operators themselves. This immediately makes a single broadband mobile network out of all the current mobile networks (a true internet). It doubles the number of mobile base stations accessible to a consumer. This creates the conditions where the mobile operators have to compete for the data traffic of their own customers every minute of the day by simply having a better network. If my mobile operator is not delivering an agreed data speed …my mobile phone automatically searches around for one that can…or failing that… gets me the best data speed.
This creates a model where each mobile network operator looks intently at where traffic is leaking out to a competitor network and builds new base stations to stem the flow of out payments. It drives up the worst performing networks to the best and incentivises the best to do even better. Network competition is re-invented. It combines the best in competition with the best in network sharing – a sort of competitive network sharing (CNS).
It is my belief that wholesale national roaming for mobile broadband data would turbo-charge our mobile broadband network competition to deliver high-speed mobile access for millions of consumers…and the great thing in these difficult financial times…it requires no capital investment to get is launched…just switch on wholesale national roaming and over the next 3-4 years… the market does the rest. There is something in it for the mobile network operators as well – it takes cost out for them. They mutually exchange their edge of cell customers who would otherwise disproportionately drain capacity out of their 3G and 4G networks. The diagram above shows that national roaming for data can improve national mobile network capacity by up to a factor of 20. In comparison all the new spectrum that Ofcom is likely to release over the next 5 years (ie 700 MHz spectrum) will only augment mobile network capacity by a factor of around 1.2.
That said such a revolutionary new competition model, whatever its merits, will not happen over the next few years. Mobile operators will not want to risk their high margin international roaming income with an emerging national roaming model that has no retail roaming charges. They will exaggerate the problems of switching on national roaming. It is not that complicated and particularly bearing in mind that automatic handover across cells of different mobile operators is not essential for data. The mobile operators are not the only ones yet to see the light. It is not a model that regulators would want to readily embrace all the while they see a chance of breathing new life into the old network competition model…better the devil they know. They appear blind to the fact that the current competition model is now only skin deep. Wholesale national roaming offers a much brighter future than a heavily regulated monopoly or duopoly…its time will come.