Connected Research

Union policy research in the 21st century

Posts Tagged ‘Mobile

Orange refused Swiss merger

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Swiss competition regulators have refused permission for Orange, the smallest of three operators in Switzerland, to merge with Sunrise, the Danish-owned second largest operator, on the grounds that the proposal would undermine market dynamics and damage consumer interests.

The merged entity, for which proposals had been developed last November, would have had a market share of 38%, compared to the 62% held by Swisscom, the former monopoly operator. However, the view of the Swiss authorities was that the merged operator: ‘would have been in a collective dominant position which risked eliminating effective competition.’ Uppermost in the authorities’ mind was that it would be more advantageous in a two-company market for both to collude over pricing levels.

An appeal, which must be lodged within 30 days, is thought likely [registration required; limited viewing time]. In the meantime, a knock-on effect of the decision has been to delay a planned flotation of TDC [registration required; limited viewing time], the Danish parent of Sunrise, which is currently owned by a consortium of five well-known private equity groups (Blackstone Group; Permira; Kohlberg, Kravis, Roberts & Co; Providence; and Apax Partners). Part of the Swiss merger would have meant France Telecom, Orange’s parent, handing over €1.5bn in cash to TDC in return for a 75% share in the merged operation – without which, on the face of it, the private equity groups concerned have been unable to realise sufficient gains prior to their exit from the Danish market.

Clearly, the Swiss mobile communications market is different to the UK one and Switzerland is outside the EU, so it’s not particularly interesting to examine the reasons for the approval of a merger in one market compared to a decision to reject a merger creating a still-small entity in another. At the same time, however, and taking these two recent situations together, it is interesting that the rationale for merger approval or rejection in neo-liberal societies seems, on the face of it, not to be so much the desire to create, or achieve, conditions of high competition but to minimise the point at which there is a potential for pricing collusion.

It’s also an interesting reflection on the role of private equity groups, and their ability to extract high rewards from relatively quiet situations (the Swiss mobile market is 9m consumers) – as well as a comment on  the involvement of private equity groups in telecoms companies. If the €1.5bn was as crucial as that to their exit from the Danish market, and sufficient to postpone it when its arrival has been blocked, then it is likely that the efficiency gains sparking their involvement in TDC have not been sufficient to make their involvement in Denmark worthwhile. At least – not yet; which may in turn spark a note of further warning to Danish trade union colleagues.

It would have been even more interesting had Deutsche Telekom, in which Blackstone has a stake, had been involved in the Swiss market.

Written by Calvin

26/04/2010 at 6:07 pm

COSMOS officially launched in UK

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COSMOS, a major five-country European study into the long-term effects of mobile phone usage, was launched in the UK yesterday. Over the course of the next two weeks, some 2.4m people in the UK will be invited to take part in the initial stages of the study, via an online questionnaire. The other participant countries are Denmark, Sweden, Finland and the Netherlands.

The commencement of the research in the UK is the responsibility of the UK’s Mobile Telecommunications and Health Research Programme, itself set up following the publication of the Stewart Report into mobile phone use in May 2000. The Stewart Report concluded that, while exposure to radiofrequency emissions from handsets and mobile base stations at levels below the existing guidelines do not cause adverse health effects to the general population, there was a need for a ‘substantial research programme’ into the isses.

The most recent MTHR report, published in 2007 (full report; press release), found no association between short-term mobile phone use and brain cancer, or evidence that brain function was affected either by mobile phone signals or by TETRA (high speed, high frequency communications networks used by the emergency services), and reported that there was no need for further research in this area. However, the report did acknowledge that there were ‘significant uncertainties’ as regards more long-term exposure, since available studies were based on very few people who had used their phones for ten years or more, and that these could ‘only be resolved by monitoring the health of a large cohort of phone users over a long period of time’. At the same time, cancers rarely show up as quickly as within ten years.

Consequently, the COSMOS research is a part of progressing this aim via a 20-30 year study of the mobile phone usage and health of 200,000 adults across Europe, 90,000 of which will be selected from network operator subscriber lists in the UK, for which funding has so far been made available for the first five years (£3.1m).  The study will focus on the risk of cancers, benign tumors and neurological and cerebro-vascular diseases, as well as changes in the occurrence of specific symptoms over time, such as headache and sleep disorders.

The number of mobile phones has increased dramatically in the decade since the Stewart report: then, there were 25m phones in operation (a market penetration rate of about 40%) while currently, according to Ofcom, there are 76.8m mobile phone subscriptions (a total of 1.26 connections per UK inhabitant) (Figure 4.42). Despite the increasing use of smartphones and mobile handsets in general as devices for a range of uses other than talking to people, mobile volume call minutes continue to grow sharply, as the following figure shows:

Source: Ofcom Communications Market Report 2009, Figure 4.71

At current levels of usage, we spend one day per year (24 hours), for each connection that exists, calling someone on a mobile phone. Given the penetration rate in the UK, each one of us actually spends more than 30 hours a year talking on the mobile. These levels of usage are unlikely to drop – smartphones add functionality without replacing the existing, and evidently expanding, need to call people on the hoof.

The study will thus make an essential contribution to filling important gaps in our knowledge about the effects of mobile phone usage in the long-term. As the COSMOS researchers say, there is no evidence that mobiles present any dangers to health – but we don’t know that they don’t. An initial report is expected in 2020 – perhaps an auspicious date for generating a vision as to what the overall conclusions at the end of the project might conceivably look like.

Written by Calvin

23/04/2010 at 2:06 pm

Ofcom lowers the rate

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As if needing to prove what good value for money it represents, Ofcom followed up yesterday’s announcement of its annual plan and budget with its long-awaited proposals on mobile termination rates. These will see termination rates – the costs levied on other network providers when calls made from their networks land (or ‘terminate’) on mobile networks – fall steadily over the lifetime of the next period of mobile regulation (between 2011 and 2015) from 4.3p/minute now (and 4.6p on 3’s network) to 0.5p/minute. Termination rates were 23p/minute in 1995.

Ofcom believes that this cut will lead to cheaper calls and, although it is a little shy of giving figures, partly because there is no regulatory compulsion on operators to pass on the savings, other than via other regulated products (as well as via the weight of Ofcom’s publicly-expressed expectations in this area), the newspapers (e.g. here and here) have happily done them for it (although as The Guardian‘s version suggests, this is likely somewhat to overstate the case). Nevertheless, the suggested annual costs stripped out by the move represent some six times Ofcom’s total annual budget.

In contrast to yesterday’s announcement of the outcome of its investigation into the pay TV market, there was no subsequent wailing and gnashing of teeth from those subject to the announcement (though Orange has had one or two things to say [registration required; limited viewing time]; while, in contrast, Terminate the Rate, supported by 3 and BT, amongst others, was clearly rather chuffed). Mobile operators are likely to challenge the proposals during the consultation period but, publicly, there has been little reaction from them. This could be because operators have already discounted the cuts – which have been long expected, given their origins within EU attempts to lower mobile termination rates under Viviane Reding, the previous Commissioner – or because, as Robert Peston suggests on his BBC blog, they are likely to respond by shifting their business model to accommodate them. It is also true that, as the next charge control period comes to an end, pressure on these rates is likely still to be present, as Ofcom believes that:

As the market adapts [i.e. to the current proposed reductions], we believe that further reductions in termination rates will promote competition, the development of innovative tariff packages and the growth of genuinely converged fixed and mobile services. [para 1.13]

The review of termination rates – these are proposals and, as such, are subject to consultation – will conclude with a statement later in the year.

Written by Calvin

01/04/2010 at 3:49 pm

Posted in Telecoms regulation

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America’s National Broadband Plan

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After 11 months of work, extensive public consultation and heavy recent trailing of proposals, the American Federal Communications Commission released Connecting America, its National Broadband Plan, on Tuesday this week (Connecting America; press release). Not all the five Commissioners agree with the Plan so, instead of a formal vote, an agreed joint statement has been issued focusing on the principles at stake. More information is available at a specific broadband website.

Running to some 360 pages, the Plan is not a light read and I’ve as yet got only as far as the executive summary. However, it’s useful to compare and contrast policy approaches to the development of broadband; policy-making doesn’t exist within a vacuum created by geographical borders.

The Plan exists on the basis of a four-pronged approach to policy-making in what it calls the ‘broadband ecosystem’, each of which it has a series of recommendations numbering 200 overall, and the six long-term goals the FCC thinks can serve as a ‘compass’ for the development of broadband over the decade-long lifetime of the Plan.

Starting with the latter – the vision thing – the six goals are these:

1: At least 100 million U.S. homes should have affordable access to actual download speeds of at least 100 megabits per second and actual upload speeds of at least 50 megabits per second.

2: The United States should lead the world in mobile innovation, with the fastest and most extensive wireless networks of any nation.

3: Every American should have affordable access to robust broadband service, and the means and skills to subscribe if they so choose.

4: Every American community should have affordable access to at least 1 gigabit per second broadband service to anchor institutions such as schools, hospitals and government buildings.

5: To ensure the safety of the American people, every first responder should have access to a nationwide, wireless, interoperable broadband public safety network.

6. To ensure that America leads in the clean energy economy, every American should be able to use broadband to track and manage their real-time energy consumption.

To ensure delivery of these goals, the Plan envisages the release of 500MHz more spectrum – the aim being that auction monies will be sufficient to finance the Plan; a Connect America Fund based on a shift of $15.5bn over the decade out of the existing Universal Service Fund and the provision of public funds of ‘a few billion dollars per year over two to three years’; and a Mobility Fund designed to ensure that no states lag behind the national average for 3G wireless coverage.

Aside of a small quibble around the slightly hyperbolic reference to the Plan ‘always being in beta’ (well-intentioned as the reference is to ensuring the Plan is flexible enough to meet changing circumstances, drafts do have to be concretised if action is ever to result), there are a lot of good things in it. Specifically, I like the following:

– the measure for high-speed broadband to be not ‘average’, or ‘up to’, but ‘actual’ and ‘at least’

– the specific requirement for upload speeds, as well as download ones, to be of a minimum standard

– an interim milestone of 50Mbps download and 20Mbps upload speeds to be delivered to 100m citizens within five years

– the universal service aspects of broadband to be based on delivering a ‘robust’ service to ‘every American’ which appears to be based on 4Mbps actual download speeds (not my emphasis but that of the Plan)

– the requirement for ‘anchor institutions’ (schools, hospitals, government buildings) in each community to have a 1 Gbps service

– the serious component based on improving digital literacy to improve the choice for citizens to be online.

There are some clear gaps. The availability of high-speed broadband is, despite the impressive language around speeds, aimed at just one-third of Americans; while a universal service of 4Mbps by 2020 might be said to be a little conservative. Such a programme creates, or exacerbates a clear digital divide within America with some, inevitably heavily urban, citizens to have super-fast speeds while others, inevitably out in the sticks, have to be content with a much poorer service.

There also appears to be little said about the levels of investment required to deliver such high speeds, which clearly require fibre to the home, other than via private sector investment based on competition. Estimates have put the costs of the Plan at some $350bn (£230bn). Given that there is a simultaneous requirement for access to be ‘affordable’, and in conjunction with other aspects of the Plan being funded by sales of wireless spectrum, that is likely to place a serious burden on capital expenditure amongst telephone companies and on the regulatory environment in which they operate. Whether that could be supplemented by state funding other than the $7bn intended to come from President Obama’s 2009 stimulus package is an interesting point for debate.

I would also be concerned that the Connect America Fund, designed to deliver universal service, is to be funded largely by a shift in existing Fund resources, together with a few billion dollars extra. The Fund (raised, incidentally, by a levy on telephone providers’ revenues, currently running at 15.3%, which may then be passed on to consumers) is already in difficulty concerning its existing responsibilities, so there is a natural concern as to how these will be met once the Fund is re-focused and – more so – how an expanded target will be delivered.

Nevertheless, the Plan – welcomed by the Communication Workers of America as a ‘good roadmap’ and described by it as ‘far-reaching’ – provides policy-makers with an extensive amount of material to debate over the coming months as the recommendations start to turn from paper towards implementation.

Written by Calvin

18/03/2010 at 11:50 am

Mobile market share – the state of competition

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This continues to be one of the most enduring posts on this blog, but it is now a little out of date. You can find the full original post below, but you might like to know that I have also updated the figures in a slightly different context than the T-Mobile/Orange JV, and re-located them in a couple of posts on a separate blog which you can find at:

http://sameoldplayedoutscenes.wordpress.com/2011/01/22/tesco-mobile-reaches-2-5m/

or (slightly earlier) here:

http://sameoldplayedoutscenes.wordpress.com/2010/09/01/mobile-market-share-2010/

____________________________________________________________________________________________________

 

And the original post commences here:

Yesterday’s press release by France Telecom and Deutsche Telekom about the approval for the merger of their UK subsidiaries highlighted an interesting snippet of information concerning the JV: that it would serve 29.5m customers.

On the presumption that this is the existing customer base of the merged JV, how does this relate to market share? We have been repeatedly told that the market share of Orange and T-Mobile in the UK is 37% – thus indicating a total mobile customer base in the UK of just less than 80 million. This is, more or less, in touch with Ofcom’s estimate that there are 126.1 active mobile connections per 100 population (Figure 4.1), given a UK population of 61m. That would indicate about 77.4m mobile subscriptions (and, indeed, a market share for T-Orange of about 38%).

The most recent Ofcom quarterly figures, published last month for Q3 2009, are, however, likely to provide a more accurate and reliable figure. These show a total subscriber base for the big 4 (i.e. excluding 3 UK) of 69.2m (Mobile telecoms market data, Table 4). We’d probably now need to add about 5.2m for 3 UK, on the basis of it at least matching its 2008 growth rate in 2009 (Figure 4.42). These figures exclude the customers of mobile virtual network operators (such as Tesco Mobile, which uses O2) for Vodafone, O2 and Orange (but presumably, therefore, they include those for Virgin Mobile in the T-Mobile stats). According to the most recent quarterly accounts for Virgin Media (Customer Segment>mobile), Virgin Mobile has around 3.232m customers. Taking these off the Ofcom numbers, to give a comparable figure for all the operators based on direct subscriptions rather than those encompassing virtual operators, gives the following indicative market shares, by number of subscribers:

Interestingly, the number of T-Mobile and Orange customers on this basis totals exactly the figure in the companies’ press release – 29.5m. Yet, the market share on this basis is not 37% – but 42%. Including Virgin Mobile subscribers in the T-Orange total, and adding a Tesco Mobile subscriber base of 2m (Retailing Services>Tesco telecoms), the market share of those on the T-Orange network climbs a little, to about 43%. This excludes virtual operators on the Orange and the Vodafone networks, but these are likely to have only a small market share (and, in Orange’s case, would further concentrate the numbers). Not really within an acceptable margin of error, that.

Now that the merger has been approved, these are figures that will need to be closely monitored in order to examine the effectiveness of the ‘remedies’ that address the competition aspects of the JV. Nevertheless, there would appear to be little urgency for this – the merger may proceed ‘by the spring’, but the auction of additional spectrum in the 1800MHz band which has been made a condition of approval for the JV need not take place until the end of 2011 while the spectrum itself does not have to be cleared for use by the winners in that process until 2013 in one case and 2015 in the other. In order to show a bit of good faith, given the fast track approval the JV has received, the parent companies might want to look at facilitating an earlier release than that.

Written by Calvin

02/03/2010 at 4:09 pm

T-Orange in the pink – but unresolved issues remain

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The European Commission has today approved the joint venture between T-Mobile and Orange in the UK. The outcome had been heavily trailed in press speculation last weekend, and the concessions appear to be in line with what the papers were then discussing, i.e:

– specific protection for 3 UK regarding its own network joint venture with T-Mobile

– T-Mobile and Orange to give up 25% of their jointly held spectrum in the 1800 MHz band

Today was the last day, according to the European Commission procedure, for the decision to be made and, as a result, the Office of Fair Trading has also today withdrawn its request that the merger be referred to it.

The questions that remain appear to me to be as follows:

1. The Commission decision talks of the arrangements with 3 UK being necessary ‘to ensure that there remain sufficient competitors in the market’. If four is now ‘enough’, why has competition policy been geared towards establishing and maintaining a fifth operator in the market – not least in the light of the influence this requirement for an additional market entrant had on the auction for 3G spectrum in 2000 (and on the subsequent fall-out)? And what should happen in the light of four operators now being a ‘sufficient’ number were Vodafone to decide it wants to merge with 3 UK, as the two smallest operators in the UK market, as happened in Australia last June? [Edit 5 March: One analyst has already commented that such a deal would, in the wake of the T-Orange JV, be ‘competitively appropriate‘.]

2. According to the press speculation, 3 UK signed a deal with T-Mobile and Orange giving it access to 3,000 more sites to support its own network expansion. Part of the OFT’s fears of the impact of the merger on 3 were that it could end up facing severe jeopardy if T-Mobile and Orange were to switch customers on to the Orange network, running down maintenance on the T-Mobile network, allowing it to atrophy and thus undermining the critical quality component (para.67). With the greatest of respect to 3’s negotiators (and of course to commercial confidence), how do we know that the additional 3,000 T-Mobile and Orange sites to which it has just secured access will continue to be ‘viable’ ones into the future (i.e. that the OFT’s fears won’t end up being realised)?

3. The European Commission correctly points out that it is contiguous spectrum across frequency bands which offers the key to early implementation of LTE (so-called 4G) services. With it, T-Orange is in a clearly advantageous – a market leading, in fact – position. The concession of the 15MHz of spectrum that T-Orange has offered must, therefore, be done in such a way as to ensure that, afterwards, there is no such contiguous position (note here that the JV appears not to have had to go further than its initial offer, according to the press speculation). This could easily be achieved were the 15MHz of spectrum conceded to be that of one of the operators alone rather than from them both. It is clearly imaginable that point (2) above is also very much tied in with this.

4. Both the EC and the OFT press release contain clearly jointly-worded statements on the concessions doing enough to satisfy on the impact of the JV on competition. Even a cursory glance at the OFT’s request indicates that this was not the only (though of course it was the primary) concern: issues of subsidiarity also featured, for example. Other question marks around the approach to regulatory decision-making highlighted previously on these pages are also important.

And, finally – something may have been lost in the translation, but the competition issues are not yet ‘resolved’, in the words of Competition Commissioner Almunia: please note that crucial decisions and actions have to be taken before that can be proclaimed.

Written by Calvin

01/03/2010 at 4:21 pm

Mobile companies and strategy issues: where next?

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Verizon Wireless, the US mobile company joint-owned by Vodafone, this week announced a partnership with Skype. The agreement will see Skype added to smartphones offered by Verizon – the largest mobile operator in the US.

The agreement, which was announced during the Mobile World Congress in Barcelona, follows a similar deal with AT&T and after a similar announcement putting Skype into Nokia’s Ovi application store, thus enabling Nokia smartphone users also to make calls using Skype.

Skype is essentially a piece of software allowing users to make telephone calls over lines which are usually used for data transmitted over the internet. The quality is, therefore, not as good as you would get from a voice call made over the traditional telephone network, but is getting better. The real attraction is its cheapness – international calls (the same as would made as a result of dialling websites or servers located in other countries) for the price of a local one. Skype is already used by some 15% of iPhone and iTouch users, and is reported to carry 12% of international call minutes.

The agreement between Skype and Verizon was heralded as telephone operators beginning to lose their fear of collaborating with voice over internet providers. It’s clearly far too early to make that sort of call just yet. All the same, it is true that the usual view of Skype is that it does threaten the typically lucrative international call market, a clear source of shoring-up revenue for fixed-line telephone operators faced with revenue falls in other markets. Its application in the mobile sphere is thus likely to present the same challenges to mobile carriers. The puff around the agreement is that Skype doesn’t threaten customer numbers – this would be true in the sense that customer numbers won’t be reduced by the agreement and they might even increase were Skype to bring some of its customers over to whichever operator it hooked up with. 3, which has a similar deal with Skype, reports increased customer usage and lower churn  – an interesting lesson. Nevertheless, the reduced revenues associated with calls made over Skype facilities that the operators’ own network are, however, surely likely to remain an issue. Inevitably, therefore, the true worth of the agreement from the perspective of the strategy of mobile operators thus seems to lie in that keeping hold of customers represents a greater prize than maintaining revenues.

It is also an interesting development in the light of ongoing capacity issues created by increasingly intense network demands made by smartphones – though Skype was quick (and mostly correct) in downplaying the network demands placed by pure voice calls in comparison to the data calls made also from smartphones. And Verizon says that it has heavily tested this aspect.

The Mobile World Congress is now concluded and has been a source for many stories in the sector this week including, at the headline level, the new alliance between mobile operators to launch an app store of their own, heralded as mobile companies fighting back against their relegation to a role as no more than pipe suppliers (and likely to reflect how mobile operators see the future monetary value of keeping hold of their customers); the BBC offering iPhone apps for news and sport (subsequently attacked by the Newspaper Publishers Association and likely as a result to be subject to political scutiny as well, depending on the outcome of the next general election); and Vodafone launching a spat with Google over the latter’s dominance of internet advertising revenues. You can find a good round-up of the themes of the week – which are likely to drive technical developments in the sector as well as its strategic focus in the forthcoming period – here.

Written by Calvin

19/02/2010 at 2:26 pm

Posted in Technology, Telecoms companies

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