Monday, December 15, 2014

U.K. Telecom Market Consolidation is Coming

BT is making a bid to acquire EE, the largest mobile service provider operating in the United Kingdom, in a  £12.5bn deal that could raise regulator issues about competition, as the deal would combine the dominant fixed line provider with the largest mobile company.  

BT also would have the largest spectrum allocation among the major U.K. mobile service providers, were it to acquire EE.

EE has 33 percent market share, ahead of O2 and Vodafone, each with about 26 percent. The new company would not reduce mobile market competition in a significant way, as BT has negligible market share, and the deal would still leave four major contestants leading the U.K. market.

As with regulator and antitrust authorities considering major merger proposals in the U.S. market, the issue is how to define the relevant “market,” for purposes of assessing the impact on competition. AT&T’s acquisition of DirecTV would remove one player from the top ranks of the video entertainment business. But is that the relevant market?

save imageEven if approved, there would remain Dish Network, Verizon and Comcast (possibly also Time Warner Cable) among the largest providers, in addition to AT&T. That would mean a linear video entertainment market with at least four major providers, on a national basis.

Comcast’s proposed acquisition of Time Warner Cable would not reduce the amount of local competition in linear video services, but also would create a single national provider with in excess of 40 percent share of the high speed access market.

The other imponderables are changes in the strategic nature of the services. Linear video already is a business in a declining state, and most assume the business will face severe contraction in the future as a result of consumer preference for on-demand streaming alternatives.

High speed access, on the other hand, arguably is the most-strategic service for any service provider, fixed or mobile.

In the U.K. market, what is the relevant market: mobile market share or quadruple play market share?

And what are the implications for market structure if the BT deal to buy EE is approved? Will the other contestants stand pat, or consolidate the market further?

It won’t be an easy decision.

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