Mobile infrastructure competition – it is far more than a numbers game!
Regulatory stability is important to encourage investments in future mobile broadband infrastructure. But what if the regulatory model itself needs reform to create sustainable economic conditions for investment? The very recent focus has been on the right number of competing mobile network operators in the market – where EU and US regulators seem to have arrived at different numbers. What is the right number of competing mobile operators? And is it just a question of getting the right number of competitors and the market will do the rest?
Sir Brian Carsberg (the first Director-General of Oftel) once quipped that the right number of competing mobile operators was one more than the market could support. Many a true word is spoken in jest. A central plank of regulatory mobile policy has been to foster new market entry. A new entrant is forced to dramatically undercut prices to buy a survivable market share. This brings down prices for everyone as incumbents have to fight back not to lose their market share. This policy has successfully delivered low prices, as we have seen particularly in the UK and France. Indeed some observers see the French market as over-delivering the benefit of low prices. “Free” have entered the mobile market not just to settle for a profitable niche but to disrupt the market. The ensuring price war has delighted consumers.
However, consumers want more than just low prices. They also want better coverage, congestion free access to the Internet, faster access speeds, lower latency and network modernisation to supports the very latest smartphone technology and apps. Meeting all these other consumer demands requires long term continuous investments. That can only be sustained if investors see a fair return…which is not consistent with retail price wars. This is today’s regulatory conundrum. Is the right answer for the consumer to have a first rate modernised mobile broadband infrastructure but relatively higher prices or poor quality older technology networks but enjoy relatively lower prices? Tipping the balance of the argument is that a first rate broadband infrastructure is not just for consumers alone but for a whole raft of new digital industries that policy makers hope will contribute strongly to future economic growth.
The European and USA markets appeared to have arrived in different places over the past decade. European consumers enjoyed lower prices than the USA but lost out on the early benefits of more advanced 4G networks for a number of years. Against this background the softening of the competition policy in the EU to allow consolidation from 4 to 3 operators in Germany and hawkish signals from the US Regulators against this happening in the US makes sense given the state of each market. So there is no single magic number of mobile network competitors. But is it only a question of getting the right number of competitors each local market can support?
It is easy to follow the argument that a slight slackening off of competition intensity to sustain profit levels is needed to attract more investment. If regulatory pressures on prices slacken it does not follow that the pressures from shareholders for higher dividends also slackens – quite the contrary. Slacking off of competition intensity also reduces the competitive drive to improve coverage, capacity (lower congestion) and modernise networks. Some past regulatory decisions throw even more doubt that reducing the number of network competitors automatically gets timely investment to flow where they are needed:
- In the GSM/3G era new market entry was linked to a new generation of technology with a result that the new entrant’s arrival provided the competitive spur for the incumbents to speed up the modernisation of their networks. Mannesmann and Orange played this critical innovation role for GSM and Hutchison for 3G. But this no longer holds true ever since regulators embraced technology neutrality. So what now is the spur that off-sets the natural tendency of companies to defer investments?
- Competition between mobile operators used to drive better coverage at the edge of the network. It created a race to acquire more sites. But this no longer holds true ever since regulators allowed site sharing. Consolidation onto the same sites runs fundamentally against network competition driving better coverage. It is pure economic fantasy to believe a new market entrant could build out a network of towers to apply competitive pressure on the incumbent mobile operators to improve their coverage.
Where does this leave EU mobile competition policy – with a lot of unanswered questions. If the central plank of mobile competition policy of fostering new market entry is no longer a credible lever to pull to deliver what society needs from its mobile network infrastructure – what is to replace it? A temptation may be to look at making it easier for MVNO’s to enter the market. This would certainly produce a lot of retail competing brands. But no amount of retail competition will turn a poor quality of network infrastructure into a good one. There appears to be a huge challenge for Europe’s regulators to come up with new ideas to create a mobile competition and spectrum policy for a 5G age to channel sustained investments into the mass production of low cost wireless data capacity across the entire Single Market.