Will policy makers dare to take-up the IET DAN initiative to rescue mobile networks from running out of road?

Will policy makers dare to take-up the IET DAN initiative to rescue mobile networks from running out of road?

It is often the case that “years” can flash by without people realising that the ground on which they stand has fundamentally shifted. So it is with the relationships between our fixed and mobile networks. Twenty-one years ago mobile radio was poised to conquer the world. We would all cut the telephone wire connecting our homes and use our mobile phones. GSM even offered data speeds twice as fast as those generally available on the fixed networks. Seven years later the fixed networks fought back with network centred “broadband” services. Ever since the mobile networks have been running behind to catch-up.  Seven more years saw the arrival of the Apple iPhone that began the dis-integration of the mobile radio economy whereby the wealth rich mobile service market started moving out of the hands of the mobile operators and onto the Internet. It is leaving the mobile operators with just the capital intensive access networks to support. The pressures are further compounded by consumers showing a sustained preference for getting many of their data hungry services (video) on their wireless devices rather than their more bandwidth robust fixed broadband connections.  It is a wireless model that will inevitably run out of road. That will happen a lot faster if politicians insist on measuring the “goodness” of their wireless national broadband infrastructures by ever increasing access data speeds.

Policy makers and industry leaders are waking-up to these growing stresses on the investment side of the mobile network operator balance sheets. There are three policy responses now on the table that aim to address the issue:

First is the proposal from the EU Commission. They are arguing that there are continental-wide scale economies yet to be secured. These can be fed back into improving the economics of the mobile operators across the EU.  There is no doubt that some sub-scale economies exist in some of the smaller EU national markets but it seems very questionable if these scale economies will amount to very much in the larger EU markets, like the UK.

Second is a policy of consolidation. This is favoured by the mobile operators. Here the idea is that Competition Authorities will allow an uncomfortable four player market to consolidate down to a more comfortable three player market and perhaps down to a two player market (where the competitive site sharing groups have already arrived in the UK). The less competitive market will allow prices to firm-up to a level to match the necessary on-going investments in the networks. Some even pencil in an eventual national wireless monopoly along the lines of BT Openreach with intensive retail competition keeping customer prices low.  The problem with this idea is that no amount of retail competition turns a poor network into a good one. The more limited consolidation has its regulatory challenges if we are to avoid the wholesale mobile market behaving like today’s energy market eg developing an opaque relationships between prices and costs.

The third option is smarter networks in a smarter regulatory framework. That is the DAN (Demand Attentive Network) philosophy. In economic terms it delivers better performing networks at lower prices. The IET has run the numbers and the efficiency gains from DAN are substantial. These gains come from getting the dis-aggregated parts of the competitive market (fixed-mobile, network-handset, network-content, network-network) to do things in a smarter way.  Some elements need regulatory change to enable (eg smarter spectrum use) but others don’t. Most of the DAN agenda can be implemented by Government engagement (rather than intervention) to bring much more energy behind cross-industry sector co-operation whilst still remaining committed to competition.

How long has the government got before something untoward happens? Probably 5-6 years. That looks like an eternity to a government under much more immediate pressures. But this is very deceptive. All the policy responses involve changes to the regulatory framework and that could take some 5 years. So today is just in time to mount the debate of what policy changes are needed. The DAN option is the more complex of the three main choices facing policy makers  but offers the UK by far the greatest opportunity – providing we are on the leading edge of making it happen.

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