U.K. Mobile Market Consolidation

The U.K. mobile market is saturated, analuysts at Ovum essentially have concluded. A bruising retention and acquisition war seems no longer to be producing adequate results, as mobile penetration has reached 118 percent.

Ovum researchers predict a shift to longer contract terms of 18 months as operators try to stabilize customer revenues, replacing the 12-month contracts that have been more typical.

Mobile operators also will shift attention to postpaid rather than prepaid additions, as two quarters of flat or negative prepaid connection growth suggest that market also is saturated.

Mobile operators also will shift focus to revenues (including value-added services) and average revenue per user (ARPU) rather than customer growth, Ovum believes.

And though the U.K. market now is dominated by top-tier operators O2 and Vodafone, more mobile virtual network operator contestants are expected.

Despite being saturated and highly competitive, the U.K. mobile market has avoided the fate of the German, Danish, Dutch and Belgium markets as ARPU and revenue still are relatively high, Ovum says. That's quite a trick!

O2 Says iPhone is Share Changer

Three out of four buyers of the iPhone in Britain will be new O2 customers won from rival mobile networks, according to the new head of O2, which has an exclusive deal to sell the iPhone in the U.K. market.

"Over time, three out of four customers of the iPhone will be new O2 customers, because you can only get the iPhone by becoming a customer of O2," says Matthew Key, incoming O2 chief executive.

iPhone for O2: Zero Margin for Carrier

Mobile operator O2 (Telefonica) reportedly has won the right to sell the Apple iPhone in the U.K. market. It may ultimately regret the victory, as the Guardian reports O2 is giving Apple 40 percent of service revenues.

The other U.K. mobile operators reportedly backed away from the deal as the O2 business arrangement essentially is a guaranteed money loser. O2 of course is gambling it can leverage the deal to take share from its U.K. competitors.

As part of the deal, Carphone Warehouse will act as an authorized retailer for O2 as well. Apple apparently retains control of device pricing.

The deal is part of a number of potential destabilizing developments in the mobile business. It isn't simply who is in the networks business. It also is where value and hence profit are to be made in the mobile ecosystem. Apple thinks it is the phone. Google might think it is the ability to create targeted advertising. Other players, such as satellite TV providers, might see value in the ability to create a triple play including broadband access and voice.

In the U.S. market there is the possibility of bids for 700 MHz spectrum, enough to construct a national broadband network. Google has said it likely will bid, and Apple itself is said to be considering its own bid. Other contestants in need of a terrestrial broadband capability, such as DirecTV and EchoStar, have to be weighing their own options as well.

Buying a transmission network is a costly way to create an application delivery network. But there are precedents. Broadcast TV, radio, cable TV, cellular, paging, satellite TV and telephone networks all were built to provide a single "killer" application. Apple could be looking at 700 MHz as a way of jumpstarting mobile video. Google is more interested in mobile advertising. The satellite providers would gain a terrestrial broadband and voice capability to create a triple play under their own control.

One might question whether any new firm focused on new applications would want the headaches of running a network. One might question whether the advantage of owning a network is really worth what it would cost to acquire spectrum and construct a network. But it is a measure of destabilization that such developments are being pondered.

Separately, T-Mobile is expected to win exclusive iPhone rights in Germany, while Orange wins that right in France. At this point, Apple is betting the device trumps the network. The U.K. iPhone will use the slower 2.5G EDGE network, not the faster 3G network.