Q&A: Northstream CEO Bengt Nordstrom

Three, O2, Ofcom


Bengt Nordstrom, Head of telecoms consultancy Northstream, discusses the proposed O2-Three UK merger

Eurocomms.com: UK regulator Ofcom has voiced a number of concerns about the proposed merger between O2 and Three. Are they right to say that it would lead to higher prices for consumers?

Bengt Nordstrom: No - it is more hypothesis than fact. There are studies that point to price increases after consolidation, but having seen these studies, my opinion is that they are more like snapshots and miss out on important macro level aspects of price trends.

For example, the long-term mobile industry trend is a 30-year journey from growth to stagnation and even declining revenues for operators, which is the key driver for consolidation.

Then there is the cyclic price and investment trend of the industry. When you look at pricing trends you have to consider if you are taking measurements during the launch cycle of a new technology, when prices typically go up because of more added value in the offering.

Finally, unlike other utility services - such as water, gas or electricity, where customers are buying exactly the same product annually - it is not a given that prices for telecom services must always fall.

What about Ofcom’s assertion that a deal would disrupt the two networks that EE, O2, Three and Vodafone currently share? 

Consolidation is also highly relevant for network sharing. Base stations are cheap, but steel and concrete are expensive.  

I’d say that the likely industry trend is for most countries to have two network sharing companies. Therefore, if I were Ofcom I’d be keen to allow at least two sharing companies with substantial competition on a particular level.
The regulator’s final concern relates to the shift in power between the operators and independent retailers, who they claim help constrain the price of mobile handsets and bills. Is this justified?

The retail market is a separate matter which has different drivers to those behind the Three/O2 deal.

In a more commoditised market, the differentiation will increasingly move from product and service - which are all similar between the players - to brand, marketing and distribution.

Approving the BT/EE merger creates a £24 billion revenue company which has deep pockets with which to build its brand, marketing and distribution.

Compare this with O2’s £6 billion in revenues and Three’s £2 billion in revenues, and you get an impression of what Ofcom should be more concerned about when it comes to maintaining fairness in the retail market.

Are there any concerns you have regarding this merger?

I’m more concerned if the merger is not approved because of the negative signal it will send to investors about putting their money into network operators.

Ofcom and the European Commission’s views are driven by their focus on consumer prices.

In my view, they’re ignoring another important goal that we have in Europe (and globally), which is to have fully digital societies by 2020.

Fibre and 4G/5G mobile networks reaching all citizens provide the foundations for this goal. Successful, well financed operators are essential to make it a reality. 

If the preference is for networks to be funded by private investors - which has been the case for the last 30 years - regulation must strike a better balance between pricing of services and what drives private investors to continue investing in networks, which is to gain a worthwhile and profitable return.

Ultimately, do you think this deal will go through? 

I believe there is a 50/50 chance it will go through now, and 100 percent chance it will go through by at least 2018.

Market consolidation is simply a natural evolution when a market is going from growth to stagnation/decline. Regulation can ignore this in the short-term but not forever.

What are the implications for the telecoms industry in Europe if it doesn’t get regulatory approval? 

If the deal doesn’t go through, the resulting slowdown in investment in the European telecoms sector will cause us to fall further behind North America and industrialised Asia Pacific in the move to become digital societies.


More Features

Opinion: Telcos must walk the digital transformation walk Opinion: Telcos must walk the digital transformation walk By Santiago Madruga, Head of EMEA Telco & ICT at Red Hat More detail
Enterprises drive Proximus to invest in “transformational” FTTH Enterprises drive Proximus to invest in “transformational” FTTH FTTH is redefining how Proximus is selling services to enterprises, its CTO says, as the Belgium-based operator embarks on a decade-long deployment of the technology. More detail
TalkTalk TV chief targets rivals as revamped strategy nears completion TalkTalk TV chief targets rivals as revamped strategy nears completion It is almost a year since Aleks Habdank took over as head of TalkTalk TV, and with a number of key strategic decisions made the exec is looking to crank up the number of subscribers at the UK-based op More detail
Video: Orange Business Services CEO defends move into public cloud space Video: Orange Business Services CEO defends move into public cloud space Thierry Bonhomme, CEO of Orange’s enterprise arm, said a need to speak the same language as its customers was the reason it has launched a public cloud service. More detail
Video: VEON Chief Technology Officer explains the re-birth of Vimpelcom Video: VEON Chief Technology Officer explains the re-birth of Vimpelcom Yogesh Malik, CTO of VEON, the new name for Vimpelcom, has outlined how and why the operator has changed in an exclusive video interview. More detail


Other Categories in Features