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?

Even 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.

Can European Telcos Return to Growth in 2016?

Service provider revenue in Europe has fallen consistently since 2009. That is not completely unusual. In five of six years since 2009, service provider revenues also have fallen in Japan.

So will the European telecommunications business return to growth by 2016? Analysts at IDATE say that will happen, although the impact of what appears to be a threat of recession in Europe might make that a daunting prospect.

The impact of the Great Recession beginning in 2008 is easy enough to describe. According to TeleGeography Research, revenue growth slipped from about seven percent annually to one percent in 2009, returning to about three percent globally in 2011.

So a new recession in Europe could well wipe out expected revenue gains expected to be in low single digits in European markets between 2015 and 2016.

Earlier in 2014, economists expected European Union economic growth of between 1.5 percent and 1.75 percent. But growth rates have dipped lower most of 2014, and might go negative in the fourth quarter.

Telecommunications service revenues were four percent lower in 2013 than in 2012, but the revenue decline should slow to perhaps -1.8 percent for 2014, with 2015 a transition year, IDATE expects. In 2016, European Union telecom revenue is projected to reach one percent for the year.

But a new recession could dash those hopes.   

In the EU28, mobile average revenue per user will have lost some 25 percent of its value between 2008 and the end of 2014. “Hence, in spite of the fact that mobile penetration

stood at 129 percent of population in europe in 2013 and will keep growing, operators earn less revenues year after year,” IDATE says.

Fixed high speed access average revenue per user was EUR 24.9 per month in 2008, declining steadily to EUR 22.3 per month in 2014. Fixed network voice revenue has been falling for about 14 years.

The IDATE study, sponsored by ETNO, the organization representing European telecom service providers, notes that 2014 revenue will fall about four percent, following at 2.9 percent decline in 2013.

Even mobile Internet access, a growth category in most markets, dipped 1.8 percent in 2014, though a better performance than the 4.5 percent decline in 2013.

Mobile remains the dominant form of Internet access, with the number of subscriptions approaching the 800 million mark in Europe. Mobile Internet access subscribers grew 0.9 percent in 2013 and likely will grow slightly by the end of 2014 as well.

Fixed broadband subscriptions grew from 157.7 million in 2012 to 163.8 million in 2013 and are expected to stand at 170 million by the end of 2014.

According to IDATE, at the end of 2014, for the first time, fixed broadband subscriptions will outnumber traditional circuit-switched fixed lines.

The big takeaway, though, is that the IDATE forecast will bump up against a likely recession in 2015 that is likely to depress revenues. All that is required is for a recession to shave one percent to two percent off service provider revenue growth rates.