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UK telecoms is changing - but for the better or worse?

Written By
Paul Campbell

Serving over 10 years at Babel, Paul possesses a deep understanding of the technology and PR landscape. With a keen eye for detail and a strategic mindset, Paul has consistently delivered successful PR campaigns that have elevated brands and generated significant business results.

First Published:
January 28, 2015

January 2015 has been a turbulent month for the UK telecoms market as consolidation between some of the UK's major operators looks likely to give the industry an overhaul. Last weekHutchison Whampoa, operator of the Three network, announced plans to acquire Telefónica's O2. Furthermore, reports this week have linked Sky with a potential deal with O2 or Vodafone, and BT's takeover of the UK's largest mobile operator EE has continued to plod along nicely. It's becoming hard to keep up!

As these changes to the market occur, it raises the questions, why are these mergers happening now, and how will they affect the mobile experience for the everyday consumer?

In recent years, the European telecoms sector has become increasingly competitive. Disruptive operators such as Free Mobile in France, and MVNOs like Virgin Media, have been able to undercut the traditional operators on price and steal market share. Furthermore, the shift away from traditional telecoms, voice and SMS, 4G and mobile data services has required hefty investment, and margins have been squeezed.

The European telecoms market has its eyes fixed on the US where two operators, Verizon and AT&T, dwarf the rest of the market and constantly retain high margins. It's not overly surprising that consolidation has already begun in Europe - in Germany, Ireland and Austria - as operators aspire to follow this trend and become more profitable.

The UK is the latest region to follow suit. By merging with O2, Three will be confident that it will become the industry leader with 32 million customers. The arrangement will also enable it to achieve substantial savings - in the region of £400m a year - giving it more money to stimulate capital expenditure. Meanwhile, BT's acquisition of EE, and Sky's potential partnership with O2 or Vodafone, will enable these telcos to offer quad-play packages, delivering multiple communications services to consumers, helping capture a larger share of the market.

However, whilst consolidation may favour the operators, many people within the industry are struggling to see how it will profit subscribers. If you look at Austrian market, for example, which has gone from four to three operators, it has had a negative on consumers' pockets, with the price of mobile subscriptions increasing dramatically. This week, The FT questioned whether consolidation was at all necessary, especially as the operators were previously pumping plenty of money into improving their network infrastructure before the mergers took place.

Gartner has recently predicted that European mergers and acquisitions could also disrupt equipment spending as operators review their contracts with equipment makers, and realign their investments. And with less competition in the market there is also the risk that operators will lose their competitive stimulus for innovation and investment. Given these factors, it is unsurprising that these prospective and ongoing mergers are going through extensive scrutiny by European regulators who will look to ensure that consolidation protects consumers, and guarantees continued competition and investment.

Hopefully lessons will be learnt from Austria, and operators will utilise consolidation to offer customers a wider range of services, keep prices low and improve their network infrastructure to deliver an altogether better telecoms experience. Only the test of time will see whether things pan-out for the better or worse.

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