Connected Research

Union policy research in the 21st century

Posts Tagged ‘Telefonica O2

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This continues to be one of the most enduring posts on this blog, but it is now a little out of date.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:

or (slightly earlier) here:



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

BT in O2 managed services deal

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BT’s Wholesale business has announced a five-year managed services agreement with Telefonica O2 UK under which it will consolidate O2’s fixed and mobile networks in the UK into a single network. In a nod to the problems that smartphones have caused the O2 network, via rapidly rising volumes of data traffic, the intention behind the deal is to provide O2 with access to reliable capacity while also allowing it to focus on customer services rather than network investment.

[Edit 5 February: O2 said also this week that it had over 2m iPhone customers [registration required; limited viewing time] by the end of 2009, when its two-year exclusivity period ended. That means that about one in ten O2 customers have an iPhone. No wonder the network’s creaking! The exclusivity period ended on 10 November, when Orange started selling it, with Tesco (which uses O2’s network) added on December 15 and Vodafone (which turned down the opportunity of an exclusivity deal on the iPhone in 2007) on 14 January. We know that Vodafone sold 100,000 iPhones in the first week [registration required; limited viewing time] (half of which were pre-orders) and that the iPhone constitutes 25% of its new sales and that the company is expecting that to rise to 30-40% in the next 12-18 months [registration required; limited viewing time]. Vodafone has a larger amount of higher frequency spectrum than O2, so its network may be less troubled by such volumes, but these sorts of deals may well become more common in the future. Overall, there must now be something like 2.5m iPhones in the UK, currently less than 4% of subscriber numbers, but the one-way direction of this trend is clear.]

Three things are obviously worthy of comment here:

1. BT used to own O2 until the debt taken on as a result of auctions for 3G spectrum (largely, here and in Germany) forced a re-think of company strategy and the flotation of O2 in appeasement of the City for being asked to contribute to BT’s resultant rights issue. Speculation about whether this deal would have needed to occur had all that not happened is not likely to be all that productive – and this post is not about to start heralding the likely merger between the two companies – but the simple commoditisation of the relationship is interesting.

2. The deal illustrates the networks/services conundrum, with the communications world increasingly divided into providers of networks/network services and providers of communications services (to customers). Allowing one company to do the first allows another to concentrate on the second. To some extent, this has already affected BT internally, with the separation of the core of the company into network (Openreach) and services (Retail and Global Services) arms (Wholesale sits somewhat across both), although how far such a strategy is followed, either in terms of the regulatory approach or else in terms of BT’s own strategy, is a moot point (as well as one being subject to frequent rumour).

3. The fusion of fixed and mobile networks into a single platform – albeit via a third party – illustrates another aspect of the convergence of communications services. The converging of communications markets – a process which has been going on for some time – merited its own section in the most recent Communications Market report by Ofcom (chapter 5) although the convergence between fixed and mobile did not feature (although such a process is quite clearly on Ofcom’s radar – see para. 2.34)). At the same time, the increasing use of Internet Protocol technology within the networks world clearly endows such agreements with a deal of rationality.

Given the typically lower levels of consumer satisfaction with mobile than with fixed networks, the deal may well bring its own problems to BT, although this may well only be around the margins and could well be lost in any further move towards ‘nixing the nines’: BT’s most recent Annual Report already refers to faults on the telephone line being experienced now on average every 13 years (p. 4) – a level which is likely to be more or less unnoticeable to most people.

Written by Calvin

02/02/2010 at 2:25 pm

Spectrum issues and the T-Orange JV

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The Financial Times reported this week that O2 and 3 have told the European Commission that it is the UK authorities that are best placed to review the T-Orange joint venture, while Vodafone has also publicly commented on its view that the UK authorities are keen to review the spectrum aspects of the merger, an issue to which O2 also points.

These pages have declared their view on these issues already – it should be investigated in the UK, as the joint venture affects only the UK market and there are thus strong subsidiarity-related reasons why the EU should choose not to get involved – but the most interesting part of the FT‘s story is the bit relating to spectrum allocations.

Last summer’s report by the Independent Spectrum Broker included a useful chart documenting existing spectrum allocations, which I have reproduced below:

Vodafone and O2, as the two earliest operators from the mid 1980s, have some frequencies at the 1800 MHz level but frequencies here are otherwise dominated by T-Mobile and Orange, which appeared on the scene in the early 1990s. Vodafone and O2 have the only spectrum awarded at the 900MHz level while frequencies at 2.1 Ghz are the ones allocated for 3G services, which is where 3 comes in – it has none of the lower frequencies allocated earlier.

The key to understanding spectrum issues is that lower frequencies (like 900 Mhz) lend themselves well to quick network roll out because they cover longer distances, and thus requires less infrastructure (base stations and masts), and because their signals penetrate buildings better than those at higher frequencies (like 1800 MHz), which require more infrastructure and which are better suited to providing capacity in denser populated, urban areas. The less good penetration of signals at higher frequencies is the reason why 3G services are, in principal, suitable for mobile services outdoors and are much less suited to fixed installations inside buildings.

Ensuring a more even allocation of frequencies was the aim of Kip Meek, the Independent Spectrum Broker, on the grounds that allowing operators to trade frequencies between them would allow them all to choose the combination of spectrum that best suited their needs and which, as a result, would improve services (and access speeds). By ending the legal challenges by operators over policy on 2.6GHz frequencies (best suited for so-called 4G services), it would allow Ofcom to catch up with European counterparts on allocation.

The dominance of the T-Orange JV at the 1800 MHz level, and thus its ability to dictate the terms of spectrum trading between the operators, is the reason why the argument has been raised that the JV should concede 1800 MHz spectrum. Without necessarily going too far down that road, it is easy to see why the JV would blow apart the work done by the Independent Spectrum Broker in reaching his conclusions on spectrum trading. It thus becomes easier to see why it is the UK authorities that need to investigate this proposed JV: these are issues that properly concern the UK, not the EU.

Written by Calvin

08/01/2010 at 12:44 pm

There’s not an app for that…

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Mobiles may well have transformed the way we communicate over the last 25 years, but pity the poor mobile companies whose overloaded and somewhat creaky networks are charged with the responsibility of continuing to deliver this transformation.

Between Christmas and New Year, the CEO of Telefonica O2 might well have confessed to the Financial Times his disappointment in recent network performance in London – for which the iPhone bears a lot of the responsibility – but things are unlikely to get much better for network operators with today’s expected, and hotly anticipated, launch of Google’s own smartphone, apparently to be called the Nexus One. It is such phones, which have vastly increased the amount of applications requiring access to the net and which essentially provide the ‘killer app’ for mobile internet, which have led to mobile networks clogging up – i.e. O2’s, in the UK, at least until the running out of its exclusivity deal on the iPhone. Similar problems are sure to await other networks which may now offer the iPhone (such as Orange and Vodafone; while Tesco Mobile, which may also sell the iPhone, uses O2), to say nothing of the Nexus One and other similar models being brought to market. As far back as February, little more than half-way through its exclusivity deal, O2 had more than one million iPhone customers.

O2 has a variety of initiatives to deal with the network issues that smartphones have created, including in working with its network infrastructure suppliers, Nokia Siemens, to boost network capacity in the large urban areas where problems are at their worst. The different technical requirements of smartphones (data pulled from networks at short intervals) also cause unique traffic problems in terms of network congestion and there are some solutions to that at the infrastucture level. But O2 believes that, currently, mobile data usage is doubling every four months [subscription required; limited viewing time] – an explosion in demand which is unlikely to get any less over the next few years and which will demand continued network investment.

[Same-day edit: Interestingly, it has also been reported that Apple’s own long-awaited tablet pc may well not include a wi-fi link as Apple believes that the likely high demand for data via the device would make it ‘unsuitable for 3G’ and that the US networks are ‘not up to it’.]

Dealing with the network implications of smartphones is crucial to the continued development of the sector in the next few years, in addition to the expected load on the mobile industry stemming from Digital Britain initiatives. Let’s hope that 3G’s ‘killer app’ is not something that ends up killing the mobile network…

Written by Calvin

05/01/2010 at 4:40 pm