OECD sees little benefit in mobile operator consolidation

Market consolidation is a popular concept with European mobile network operators (MNOs), but recent experience in countries that are members of the Operation for Economic Cooperation and Development (OECD) suggests it may not serve consumers' best interests--even when there remains a choice of three network providers.

The OECD countries that have the largest number of MNOs also have "a higher likelihood of more competitive and innovative services being introduced and maintained," according to a recent OECD report.

In Austria, for example, consumers face more confusing, and higher, prices following the consolidation of the Austrian market from four to three players, according to the report's findings. In Austria "all operators increased the prices of their most popular offers and Hutchison increased the prices of its least expensive offer," following consolidation, according to the OECD.

In contrast the arrival of a new network operator, or markets that maintain four operators, see increased investment in network infrastructure as operators seek to compete on the basis of infrastructure and services, say the report's authors.

France and Israel in particular are highlighted as being among the most dynamic mobile markets in the OECD. In both cases new network operators (Free in France; Golan Mobile and HOT Telecom in Israel) have cut prices and simplified pricing plans, thereby making it easier for consumers to compare and understand what they are buying.

The result in France, for example, has been a boom in the number of mobile subscriptions. At the end of the third quarter 2014 there were 67.6 million SIM cards subscribed to network operators in France, which represents a rise of 730 000 subscriptions in one quarter, according to recent figures from French regulator Arcep.

French MVNOs are also enjoying subscription growth: MVNO subscriptions grew by 270,000 in the third quarter to reach nine million, according to Arcep.

The OECD also points out that in the Netherlands the arrival of a new 4G network operator in 2014 has already resulted in MVNOs' offers becoming more competitive.

Operators can contend that increased competition and lowering ARPUs reduce their profitability to dangerously low levels, which will impact investment. However, the report argues that lower revenues per user do not necessarily impact operators' broader sales.

The experience in countries such as Austria, France and the UK indicate that operators need a certain revenue to be operational, but adding an extra unit or an extra customer does not carry a significant marginal cost, according to the report.

"ARPU is not really a good measure of profitability. If the number of SIM cards increase you may have an increase in revenues without a significant increase in costs," says Rudolf van der Berg, one of the report authors.

The OECD does not recommend consolidation for operators looking to reduce costs to offset lower ARPUs. Not only can operators hope to reduce opex via the move to IP-based 4G networks, they can also gain from network sharing. In Sweden, for example, extensive network sharing is cited as a reason for near ubiquitous 3G and 4G mobile coverage.

For more:
- see this Arcep release

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