Thursday, November 1, 2012

Mobile Market Structures are Unstable: UK, France, U.S. Show Why

Vivendi's SFR mobile operation is reportedly talking to Iliad (owner of Free Mobile) about a merger. SFR also apparently is in talks with French cable operator Numericable about a merger of SFR with Numericable as well, Reuters reports. 

Those talks indicate that, after a period of relative stability, mobile market structure, in France and elsewhere, might be changing, because of market saturation and competition. 

In many Western European markets there are four, and sometimes five facilities-based mobile  service providers. That was sustainable in an earlier period where the mobile market was growing. 

But the issue has been whether four to five contestants are  "too many" suppliers for a stable market. In the United Kingdom, the formation of EE is another example, while in the Sprint and T-Mobile USA are the contestants seen as inevitable parts of a future market consolidation.

With the recent mergers of T-Mobile USA and MetroPCS, and the purchase of Sprint by Softbank (assuming both transactions pass regulatory muster), there is once again an active discussion in many quarters about the future shape of the U.S. mobile service provider business.

What seems a safe observation, though, is that the number of successful mobile service providers will be few in number. The only question is “how few?” In many markets, there are four to five major providers, in terms of market share. But just how stable a market that is is questionable.

The Rule of Three holds nearly everywhere. While the percentage market share might vary, on an average, the top three mobile service providers control 93 percent of the market share in a given nation, irrespective of the regulatory framework.

Some might argue that scale effects account for the relatively small number of leading providers in many capital-intensive or consumer electronics businesses. At some point, the access business can have only so many facilities-based providers before most companies cannot get enough customers to make a profit.

Consolidation is the result. 

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