Chris Howarth, Communications Industry Lead Managing Director for Accenture UK and Ireland, discusses M&A activity in the UK How can a combined O2/Three compete as a mobile-only entity against BT/EE and Vodafone, both of whom have converged offerings?

Chris Howarth: Being number one in the wireless market once the customer bases are combined is not a bad place to start to compete from.  

However, this is a rapidly evolving market with high propensity to churn so the need to create compelling propositions and products to stay ahead is critical.  

Three has continually driven compelling commercial offers that have grabbed headlines and customers, and questioned the status quo, and I am sure they will continue to look for ways to drive growth this way.  

It will be particularly interesting to see how O2’s strong brand, and relatively low historical churn rates, will impact decisions around brand strategy once the merger is approved.

The need to provide converged offerings will increase over time, but this has can be done through strategic partnering, or achieved organically, or further consolidation all of which can be assessed as the market moves in this direction.

Vodafone’s discussions with Liberty have fallen through; does it have what it takes to compete in the UK or does it need to add to what it already has?

We expect the rate of consolidation to continue, and even increase across Europe.

Vodafone already successfully competes in the UK, and have already completed the major integration of Cable and Wireless, which has given them a wide range of capabilities.

So they can certainly provide a breadth of offerings already to compete, but to continue to create compelling and differentiated propositions and services for their customers there could be further strategic partnering or consolidation in the future.

Do you expect prices to rise in the UK as a result of all the M&A activity?

Regulation, and continued competition, will effectively control pricing as consolidation takes place.  

Convergence is actually likely to drive to overall price reductions, as bundled offers will be accompanied by compelling pricing.   

Individual standalone services are more likely to decrease as demand drops off for these, and as CSPs push harder on bundled services. 

It also remains to be seen what remedies, if any, will be requested by the regulators to allow the consolidations to take place, which should be aimed at promoting competition and protecting consumers from price increases. 

Consumers are looking for a ‘seamless experience’ with the lines between work and home becoming increasingly blurred, subsequently they are looking for their services and devices to be provided by one supplier. 

This gives the opportunity for CSPs to supply differentiated offerings, and enhanced customer service and quality, and it is these ‘value add’ areas that are more likely to lead to net spend by consumers increasing.  

Other markets such as the US, demonstrate that consumers are willing to pay more for their communication needs, and so the opportunity to grow revenue this way is certainly there.

Sky are set to enter the mobile market next year – what impact will they have?

Sky will obviously enter as an MVNO, and so will be entering a fairly crowded marketplace, without the benefit of being in control of their own network.  

However, companies such as Tesco Mobile have shown the impact an MVNO can make, if they target their offerings correctly, have strong customer service, and use an existing loyalty scheme to cross-sell to existing customers.  

The real interest around Sky is how they will incentivise a move to their mobile services from their large and loyal TV base, which could give them rapid penetration and market share. 

So far, there has not been huge take-up for other CPSs as they have offered bundled mobile services but if as predicted this is where the market is trending the timing could be right.

More widely, what can we expect from the MVNO market moving forwards?

According to a recent report from the GSMA Intelligence unit, some 59 percent of the world’s MVNOs are based in Europe, making it by far the most advanced region for MVNOs in the world. 

Even given this context, the UK is a mature MVNO market, and as such the broad expectation for most MVNOs is for business as usual following ongoing market consolidation activity. 

MVNOs will continue to have an important role in the market as an additional channel to market for mobile network operators, even post consolidation. 

Longer term, the main threat to MVNO growth will be the possible scarcity of supply of network capacity from the mobile network operators. 

Expected exponential growth in mobile data may mean that mobile network operators are forced to ration capacity made available to MVNOs in order to serve their own retail customers which in turn would constrain the MVNO market as existing wholesale deals come up for renewal. 

However innovations such as offloading mobile data to WiFi, ever-increasing spectral efficiency with services such as 5G and greater distribution of content to the edge of mobile networks may mitigate these challenges.

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