Unstable U.K. Mobile Market About to Become "Stable?"

Given regulator preference for four leading mobile players, rather than just three leading providers, it has to be noted that regulators are deliberately opting for a market that is inherently unstable, compared to the likely structure of a three-provider market.

The reason is that the mobile business arguably and ultimately is an oligopolistic industry, even if the markets can, for a period of time, apparently diverge from that pattern. As a theoretical rule, one might argue, an oligopolistic market with three leading providers will tend to be stable when market shares follow a general pattern of 40 percent, 30 percent, 20 percent market shares held by three contestants.

Up to this point, the U.K. mobile market has featured EE and O2, each with 29 percent market share, followed by Vodafone with 23 percent share, trailed by Hutchison’s 3 at 12 percent.

That four-provider structure is roughly similar to the U.S. mobile market, where AT&T and Verizon each tend to have 30 percent share, while Sprint has about 17 percent and T-Mobile US has about 14 percent share.

If one assumes a stable oligopoly market structure has the leading provider with about 40 percent share; the number-two supplier with about 30 percent share and the third player a share of about 20 percent, the U.K. market would, with a Hutchison acquisition of O2, be functionally stable.

That still leaves open the question of whether Vodafone ultimately is acquired, but that change of ownership would not make the market unstable.

Looking only at the mobile market, BT has 40 percent share. If Hutchison were to acquire Telefónica assets, Hutchison would have about 29 percent share. Vodafone would have about 23 percent share. That fits the stable oligopoly market pattern almost perfectly.

Whether it still will make sense in the future to evaluate fixed and mobile markets as distinct entities is the issue. In reality, the consumer services market has become reliant on a bundled services approach that initially has been anchored by voice, video entertainment and high speed access, but is moving to a quadruple play approach that includes both fixed and mobile services.

Vodafone, which with a Hutchison acquisition of O2 would fall to fourth place among mobile operators, is shifting from its historic mobile-only strategy to a quadruple play approach.

As a rule, there are two kinds of companies in the telecom business: strategic buyers and strategic sellers.

After disposing of its U.S. Verizon Wireless stake and SFT to Vivendi in France, Vodafone might have been seen as a strategic buyer. But some have considered Vodafone a strategic seller. In the near term, Vodafone might be a buyer, even if it ultimately winds up being a strategic seller.

The point is that it might soon be misleading to assess market share in the mobile segment as distinct from share in the fixed services segment. If the market shifts to quadruple play, with a mix of fixed and mobile assets, share across networks and services will matter most.