Mobile carrier consolidations across Europe suggest that while per-gigabyte prices in three-player markets continue dropping, they do so more slowly than in markets with four carriers, according to an extensive study on the topic by Rewheel, a mobile consultancy based in Helsinki, Finland.
This, of course, is an area of concern in light of the proposed $26 billion merger of T-Mobile and Sprint that was announced on April 29. Naturally, there are caveats to any such comparisons: Markets are different, the move from four to three providers in the U.S. would be conducted under different regulatory conditions and the time gap of even a few years is meaningful in the quickly evolving wireless world.
Nonetheless, though the deals are apples and oranges, they are all still fruit.
Rewheel's research (PDF) focuses on consolidations in Austria and Germany where the number of nationwide wireless providers dropped from four to three. In Austria, four carriers condensed to three when Hutchison Whampoa bought Orange Austria in January, 2013. The German deal, Telefonica's acquisition of E-Plus, closed on Oct. 1, 2014.
Rewheel's research looked at price per gigabyte, which is only one element of the total price a subscriber pays. It used that approach because the way in which subscriber pricing is actually structured varies greatly and makes comparisons difficult.
Some operators offer unlimited gigabytes while others charge incrementally. Rewheel uses models that try to work through the differences and intricacies to determine the real price per gigabyte that is being charged.
The key finding from Rewheel’s research is that prices fell in all markets, but they fell far faster in those markets with four mobile network operators. This includes the Italian market, where the merger of CK Hutchison and VimpelCom was conditioned on the launch of a mobile service by French operator Iliad.
The firm's comparative analysis uses September 2013—the point after the Austrian deal but before the German one—as the historical marker point against which today's costs are compared. At that point, in 2013, €30 bought about the same amount of gigabytes in those two countries and most other European markets. Prices per gigabyte of data continued to decline in both three-carrier and four-carrier markets. However, declines in the three-carrier Austrian and German markets were considerably less than in the four-player markets.
Rewheel found that in the European countries it studied, subscribers in four-carrier markets on average can buy three times more gigabytes for €20 than in three-carrier markets. They also can buy almost twice as many gigabytes for €30 in four-carrier markets than in three-carrier markets. In German and Austrian markets, subscribers pay four and three times more, respectively, for 50 gigabytes than in the four-carrier French market.
The bottom line
Rewheel Managing Partner Antonios Drossos, the author of the report, told FierceWireless that the study tracks with similar research conducted elsewhere. The bottom line is that subscriber prices are generally 15-25% higher in markets with three providers when compared with markets with four providers—though all markets showed some declines in price.
Another look at the impact of consolidations—where the number of providers was reduced from four to three—was published in 2015 (PDF) by The Center on Regulation In Europe (CERRE), a think tank that studies European regulatory issues. The group did an exhaustive study of the impact of market conditions in a number of European countries for the years between 2002 and 2014. The report projected that a "hypothetical" consolidation of a market from four to three carriers would increase subscription rates by 16.3%. A "more realistic" consolidation of smaller carriers in European markets increased subscriptions rates from 4-7%.
Rewheel’s Drossos pointed to basic economics as the reason behind the precipitous price drops in markets with four players. If there are four players, he said, at least one will focus on price and not ubiquity. That pressures the other three carriers to follow suit.
If there are only three players, however, the carriers with more coverage will be less inclined to get into a price war and will simply cede the price-conscious segment to the third player. This makes more sense for them than to lower prices across the board. With only three players, the market likely will be big enough for three players to thrive without playing the cost-cutting card.
Drossos contends that neither encouraging MVNOs nor mandating the creation of a fourth player—as was done in Italy—will change the basic reality that markets with three carriers have higher prices than those with four. After all, MVNOs can't offer a better deal than the carrier on whose network they are a tenant.
The creation of a fourth player could have an impact though. There are different ways that the artificially added player can be structured: Some are considered more likely to compete with the three established carriers and some are more complementary. In the case of the T-Mobile/Sprint merger, a fourth player requirement would have to be structured in a way that doesn’t eliminate T-Mobile's incentive to make the deal with Sprint in the first place.
A shifting market
Rob Mesirow, a partner at professional services firm PwC, sees the impact of the deal as coming into a broader context. He suggested that the T-Mobile/Sprint merger is a major step in the unification of the telecommunications industry overall in the United States. He said the future industry will feature seamless connectivity instead of a collection of discreet and competing players from the wireless, cable and telco segments.
Mesirow suggested that an "access provider environment" is emerging.
"It may be cliché, but this is an inflection point," he said. "This proposed merger is something that should accelerate [this evolution] in the hearts and minds of consumers and regulators. It's a really big deal in how industries move forward together."
The merger must be approved for this to happen, of course—and Drossos suggested that this is no sure thing.
"This deal almost certainly won't be approved [strictly] on its antitrust merits without significant changes, which would be to create a new operator," he said. "But of course I do not know how to factor in Trump's influence over the DOJ. Under Barack Obama there would be almost no chance of the deal being approved.”