By Dave Fraser, CEO, Devicescape
UK telecoms regulator Ofcom ruled in September that certain spectrum charges will rise to reflect ‘market value’. This was never going to be good news for the mobile operators, despite Ofcom’s half-hearted attempt to sugar the pill by reminding them it could have been worse.
Three UK, EE, O2 and Vodafone face a trebling of the annual fees they pay to use their 900MHZ and 1800MHz spectrum, to a new total of £199.6m, and they’re not happy.
Understandably so. This year’s Ofcom Communications Market Report showed sector revenues flat to declining from 2013 - 2014, with mobile data volume increasing by almost 90 per cent during the same period. Even voice minutes went up, contributing to a stark bottom line of less revenue and more cost.
Like the old saying goes, ‘a problem shared is a problem halved,’ and there is every chance operators will share this problem with their customers in the form of price hikes of their own. An EE spokesperson recently indicated as much to the Daily Telegraph.
To compound the consumer gloom, the UK already looks like a market where competition is on the wane. With plans in place for 3UK to acquire Telefónica-owned O2 and BT to absorb the Deutsche Telekom/France Telecom joint venture EE, we are looking at a four-to-three consolidation that, history suggests, will result in price rises irrespective of the pass-on costs from Ofcom’s spectrum tariff adjustment.
Market analyst Rewheel published a report earlier this year which concluded: “In four-to-three consolidated or under consolidation mobile markets, the average price of the 5GB mobile internet access basket rose by up to 56%, while lowest available prices rose by up to 68%.”
Evidently, it is time to take care of the pennies.
While these developments might bode ill for the consumer, it is worth bearing in mind that a reduction in the competitiveness of a market can create a vacuum which, with a pleasing balance pulls in innovation from new places.
U.S. mobile virtual network operators (MVNOs) ROK Mobile and FreedomPop have both crossed the Atlantic with summer launches this year, and Carphone Warehouse’s MVNO iD is another recent addition to the UK mix. Free from the burden of infrastructure investments and spectrum costs, these newcomers can attack the market with more latitude (and more attitude) than the incumbents.
In FreedomPop’s messaging you will find no shortage of either: “100% free mobile phone & high speed internet service. No contracts. No gimmicks. No hassles,” is the clearly expressed proposition. The firm has publicised its goal of winning one million customers inside three years and it is hard to find a better acquisition hook than offering something for free.
ROK has a slightly different approach; pitching itself as a “mobile and music” service, as well as in the U.S. recently announcing the impending launch of an all-you-can-eat mobile video service.
Both these MVNOs are deploying messages a world away from the traditionally complex and confusing websites of the incumbent mobile operators—and their approach to connectivity provision is just as interesting as their consumer positioning. In the U.S. they are part of a movement known as “Wi-Fi First”, a group of disruptive connectivity providers who have made Wi-Fi of all kinds central to their service model.
They understand that consumers — particularly younger ones — want to get connected to the apps and services they love for as little cost as possible. How their connectivity provider enables this is largely immaterial as long as it works, and Wi-Fi can offer significant cost benefits.
With prices on the increase and incumbent network operators focused on complex post-M&A integration problems, there could hardly be a better time for the likes of ROK and FreedomPop to address the UK market with the language of liberty and change.
So what impact can we expect? In June this year the Austrian regulator reported that competitive pressure from new MVNOs — the introduction of which was mandated as part of regulatory approval for Austria’s own four-to-three consolidation — was beginning to drive prices down. Prices had risen more than 30% in the wake of that consolidation, with the MVNOs taking roughly two years to have a noticeable impact.
As with so much in life, timing is everything and the UK market looks ripe for a shake-up. Compared to Austria, the UK may well feel the effects of these new disruptors more rapidly, as launches have taken place ahead of planned consolidation rather than in its wake.
Alongside these eye-catching new propositions, it will be particularly interesting to see how these players look to exploit the learning of their U.S. Wi-Fi First positioning in the UK, a market in which consumers are hungry for connectivity and increased competition in equal measure.