Will UK Telco Consolidation Play 4-3-4?

Excuse the football pun in the title but we are approaching UEFA's Euro 2016!

In a recent article Orange’s Gervais Pellisier suggested that telco consolidation was off in the short term (2 yrs). Pellisier may be correct that telco M&A activity will reduce in Europe, following the EU ruling preventing CKHH from acquiring Telefonica’s O2 UK. However, this doesn’t apply to, or rule out, UK telco M&A activity.

Essentially, the EU ruling preserves the UK consumer’s four choices (EE, O2, Vodafone & Three), which has led to some of the best consumer deals in Europe.Well done Margarethe (Vesthager, EU Competition) said Best Wishes to Alex Chisholm (UK CMA)

The ruling has, however, left O2 weaker; Telefonica still trying to sell an unwanted (& less valuable) asset; and CKHH’s Three vulnerable without the leap in UK scale, efficiency & improved margins a combined H3O2 operation was supposed to deliver.

So how do you preserve Consumer Choice, satisfying the UK CMA & EU, and deliver Digital Britain with the accompanying connectivity infrastructure investment that requires?

Fortunately, for the four UK Mobile Operators the EU ruling does not conflict with UK CMA’s approval of BT's acquisition of EE. The BT/EE decision sets a precedent where a pure fixed operator (which BT essentially was) can merge with or acquire a pure mobile player (which EE essentially was) - as long as competition is preserved (I would argue competition was not considered when BT acquired EE, BT now dominates the telco market.).

Competition could be re-established by further M&A activity that create four players competing to provide quad-play services: Broadband, TV, Mobile & (the increasingly anachronistic) Home phone line). This outcome could be achieved by M&A activities similar to BT/EE to create three strong consumer alternatives: Virgin/Voda or O2 or 3; TalkTalk/Voda or O2 or 3; Sky/Voda or O2 or 3. The lawyers are smiling!

Two immediate questions arise:

1. How to stop BT dominating through their superior network, OpenReach’s poor delivery record connectivity and wireless spectrum dominance? A BT breakup of Openreach or other radical regulatory intervention may be the answer.

2. Is Mobile/Wireless Broadband a worse connectivity option than Fixed Broadband? In Dense Urban & Urban areas there is a choice.

In suburban & rural there is often no fixed broadband choice, so mobile/wireless would offer competition and choice. As mobile/wireless technology advances from 4G to 5G this may become a more cost effective and faster alternative. Whichever alternative is chosen Provider’s must invest to deliver a consistent 10Gbps nationwide to whomever wants it. Quad players would be able to deliver this outcome and Consumers should demand it.

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