The deal will be completed in the first half of next year and is conditional on both companies signing binding commitments to invest billions to roll out a combined 5G network across the UK and cap tariffs and offer preset contractual terms to MVNO’s for three  years.

In September, the Phase 2 investigation of the merger found the could lead to higher prices for customers and poorer terms for MVNO’s. The CMA says the investment commitment and protections forretail and wholesale customers resolve its competition concerns.

The legally binding commitments require a joint network pla which sets out the improvements Vodafone and Three will make to their combined network across the UK over the next eight years.

The plan would boost competition between the mobile network operators in the long term, benefiting millions of people. The plan would be overseen by both Ofcom and the CMA, The merged company must publish an annual report setting out its progress.The CMA will; montor and enforcing the protections on consumer tariffs and wholesale terms.

The £11 billion network investment will require no public funding and, as highlighted by the CMA, will “boost competition between the mobile network operators in the long term, benefiting millions of people who rely on mobile services.

Vodafone CEO Margherita Della Valle said: “Today’s decision creates a new force in the UK’s telecoms market and unlocks the investment needed to build the network infrastructure the country deserves. Consumers and businesses will enjoy wider coverage, faster speeds and better-quality connections across the UK, as we build the biggest and best network in our home market. Today’s approval releases the handbrake on the UK’s telecoms industry, and the increased investment will power the UK to the forefront of European telecommunications.”

Canning Fok, Deputy Chairman of CK Hutchison and Chairman of CK Hutchison Group Telecom Holdings, said:

“We have been operating telecoms businesses in the UK for over three decades and Three UK for the past two. We have invested in the people and the infrastructure, helping to bring the benefits of mobile connectivity to UK businesses and consumers. When Three and Vodafone are combined, CK Hutchison will fully support the merged business in implementing its network investment plan, the cornerstone of today’s approval by the CMA, transforming the UK’s digital infrastructure and ensuring customers across the country benefit from world-beating network quality.”

“It’s crucial this merger doesn’t harm competition”

Stuart McIntosh, chair of the independent inquiry group leading the investigation, said:“It’s crucial this merger doesn’t harm competition, which is why we’ve spent time considering how it could impact the telecoms market. Having carefully considered the evidence, we believe the merger is likely to boost competition in the UK mobile sector and should be allowed to proceed. But only if Vodafone and Three agree to implement our proposed measures”.

improvements

Kester Mann, Director, Consumer and Connectivity at CCS Insight  vsaid: “This mega-merger marks one of the most significant moments in the history of UK mobile, heralding the arrival of a new market leader with a combined 29 million customers.

 “The outcome – after months of intense regulatory scrutiny – is about as good as it could have got for Vodafone and Three. Not only did they secure approval, but the agreed remedies and commitments are less onerous than feared.

“The CMA’s decision to approve the merger is the right one and largely strikes a good balance between nurturing competition and encouraging investment. It should pave the way for more efficient investments to bring about much-needed improvements to mobile services in the UK.

“With approval secure, the hard work really begins. The merged company’s biggest task will be to combine two established mobile networks with a complex assortment of network suppliers. CEO Max Taylor will also face difficult decisions in areas such as brand, retail, jobs, and market positioning. Rivals should be ready to pounce if any stage of the integration goes awry.

“The outcome is a positive one for the broader European sector, which has been clamouring for greater leniency on mergers for years. It may give operators in other markets fresh confidence to strike new deals of their own.”

Matthew Howett, Founder & CEO, at Assembly Research commented:

“Today’s final report sets the wheels in motion for a transformation of the UK’s mobile market, and ultimately the experience for consumers. There is still a chance Sky may seek to challenge the decision, but a successful appeal to the CAT would be hard-fought, expensive and face a high bar. We expect positive implications overall, not only for investment in, and the quality of, networks (including standalone 5G), but also for the wholesale customers and consumers and businesses that rely on them.

“The remedies package and headline investment commitment mean that the CMA’s work in this case is not quite over – and for Ofcom it’s just getting started. While it will be incumbent on a combined Three/Vodafone to invest and implement the requisite customer protections,

“Ofcom will play a vital (and new) role with respect to oversight and enforcement. Importantly, the regulator seems emboldened to assume these responsibilities. Its monitoring will need to be carried out in an agile way as possible to ensure the merged entity is living up to expectations and to minimise any risk of circumvention or market distortions that some have warned about.”

Paolo Pescatore of PP Foresight said it would take “many years” before the full merits of the deal are realised

“Ahere’s a lot of tough decisions to come. Merging two networks is no easy feat. While there are past examples with BT/EE and VMO2 to draw upon, it’s not going to be smooth sailing.” Overall, it’s a big deal for both players, arguably even more so for Three given its business model would have been unsustainable in the long term.”

“Network leadership will make or break the success of the deal. How much of the so-called promises will be spent on actual networks, when 5G is already widely available. For now, EE still remains the benchmark when it comes to network leadership based upon recent developments and on fibre rollout through Openreach.”

“Rivals will have a window of opportunity to lure disgruntled customers during this painful integration process. Priorities will be implementing a successful strategy and choosing a brand that resonates with consumers and business. On this it is very hard to see the Vodafone brand disappearing from its home core UK market. Better price guarantees in the next few years will be a big pull for customers.”

The Competition and Markets Authority has agreed that a significant network upgrade by the merged company could address competition concerns and allow the merger to proceed.

The CMA now states that a legally binding commitment from Vodafone and Three to undertake their proposed investment program would improve the quality of the merged company’s mobile network. This is expected to boost competition among mobile network operators in the long term and benefit customers.

However, short-term protections would be necessary to ensure that retail consumers and mobile virtual network operators (MVNOs) continue to receive competitive deals during the initial years of network integration and investment roll-out.

Legal obligation

Vodafone and Three are now obligated to deliver their joint network plan, which outlines network upgrades and improvements to be implemented over the next eight years across the UK. This will be a legal obligation, overseen by both Ofcom and the CMA.

They must also commit to retaining certain existing mobile tariffs and data plans for at least three years and to avoid short-term price increases in the early years of the network plan. Additionally, there must be pre-agreed prices and contract terms to ensure MVNOs can access competitive wholesale deals.

Stuart McIntosh, chair of the inquiry group leading the investigation, said:

“This deal has the potential to be pro-competitive for the UK mobile sector if our concerns are addressed. Our provisional view is that binding commitments, combined with short-term protections for consumers and wholesale providers, would address our concerns while preserving the benefits of this merger. A legally binding network commitment would boost competition in the longer term, while the additional measures would protect consumers and wholesale customers during the network upgrades.”

A final decision is due before the statutory deadline on 7 December. The inquiry group is inviting feedback on today’s announcement by 5 p.m. on 12 November.

Vodafone UK CEO Max Taylor Said:

“We’re pleased the CMA agrees this deal has the potential to be pro-competitive for the UK mobile sector, and we believe the national rollout of a 5G Standalone network has the potential to transform connectivity in the UK. We will need to study the Working Paper in detail, but from what the CMA has communicated so far this morning, we believe it provides a path to final clearance. The CMA’s final decision on the merger is due in early December, and in the coming weeks we will continue to positively engage with them to resolve any outstanding matters”

Telecoms analyst Kester Mann of CCS Insight commented:

“Vodafone and Three can tentatively order in the champagne as their blockbuster UK joint venture appears to have taken another big step forward following a positive statement from the competition watchdog.

“After months of scrutiny, the Competition and Markets Authority (CMA) indicated it is ready to accept the proposed remedies offered by Vodafone and Three, potentially allowing their planned merger to proceed. Approval would mark one of the most significant developments in the history of UK mobile, heralding the arrival of a new market leader with over 29 million customers.

“The watchdog’s statement won’t be welcomed by all. BT and Sky Mobile have sternly opposed the deal and are likely to vociferously attempt one final effort to have it blocked before the CMA’s final deadline in less than five weeks.”

Although a final decision is not expected until December 7, the CMA says it is now worried that the merger “could lead to millions of customers having to pay more.”

Vodafone and Three disagree with a number of elements in the Provisional Findings. Read their full response HERE.

 Margherita Della Valle, Vodafone’s Chief Executive said: “Our merger is a catalyst for change. It’s time to take off the handbrake on the country’s connectivity and build the world-class infrastructure the country deserves. We are offering a self-funded plan to propel economic growth and address the UK’s digital divide.

“Great network connectivity is a critical enabler of so many elements of our daily life and is central to the future prospects of so many sectors. Businesses large and small are dependent on it and it enables new industries – like AI – to thrive. It facilitates a step change in productivity and care across the public sector, and it lies at the heart of every nation’s future prosperity.”

Vodafone CEO of European markets Ahmed Essam said “Whilst we disagree with the assertion that the merger will lead to price rises for customers, we are encouraged by the recognition from the CMA that the country needs a better quality network that the £11bn investment will bring”.

Potential solutions

The CMA says “will explore potential solutions to its concerns before a final decision by December 7.” However, it has provisionally concluded that the merger would lead to a “substantial lessening of competition in the UK – in both retail and wholesale mobile markets.”

The investigation, led by an independent inquiry group, suggests that the merger would result in price increases for millions of mobile customers or reduced services, such as smaller data packages in their contracts.

Concerns

The CMA has particular concerns that higher bills or reduced services would negatively affect those customers least able to afford mobile services, as well as those who might have to pay more for improvements in network quality that they do not value.

The CMA has also provisionally found that the merger would negatively impact MVNOs, such as Lyca Mobile, Sky Mobile, and Lebara, which rely on the existing network operators to provide their own mobile services.

“The merger would reduce the number of network operators from four to three, making it more difficult for MVNOs to secure competitive terms, restricting their ability to offer the best deals to retail customers.”

Overstated

However, the CMA does concede that the merger could improve the quality of mobile networks and accelerate the deployment of 5G networks and services. But it considers that these claims are overstated and that the merged firm would not necessarily have the incentive to follow through on its proposed investment programme after the merger.

The CMA will now consult on its provisional findings. It will also consult on potential solutions to its competition concerns, including the options set out in its remedies, such as legally binding investment commitments overseen by Ofcom and measures to protect both retail customers and customers in the wholesale market. The CMA will retain the option to prohibit the merger if it concludes that other remedy options will not address its competition concerns effectively.

Guarantees

Stuart McIntosh, chair of the inquiry group leading the investigation, said, “We’ve taken a thorough, considered approach to investigating this merger, weighing up the investment the companies say they will make in enhancing network quality and boosting 5G connectivity against the significant costs to customers and rival virtual networks. We will now consider how Vodafone and Three might address our concerns about the likely impact of the merger on retail and wholesale customers while securing the potential longer-term benefits of the merger, including by guaranteeing future network investments.”

Three CEO Robert Finnegan immediately took to social media to say:

“The Vodafone/Three merger is a once-in-a-generation opportunity to transform the UK’s digital infrastructure with £11bn of investment. Vodafone and Three UK disagree with the CMA’s provisional findings that their merger raises competition concerns and could lead to price rises for customers.

“By all measures, the merger is pro-growth, pro-customer, and pro-competition. It can, and should, be approved by the CMA. The current UK four-player mobile market is dysfunctional and lacks quality competition, with two strong players and two weak players.

“This is reflected in the current state of the UK’s digital infrastructure, which everyone agrees falls well short of what the country needs and deserves. We are determined to reassure the CMA in relation to their provisional concerns and work with them to secure the extensive benefits this merger brings for UK customers, businesses, and wider society.”

Analyst Kester Mann of CCS Insight  agreed that the CMA’s concerns make for uncomfortable reading for Vodafone and Three.

“However, many of these had been outlined previously, notably the potential for higher prices and the likely impact on the wholesale market. The main setback for the merging parties is that the CMA considers claims of superior network quality post-integration to be ‘overstated.’

“The CMA offers a potential path to approval through a range of remedies. Crucially, it appears willing to consider ‘behavioral remedies,’ such as enhanced network access for virtual providers or safeguards for retail customers.

“This is significant, as many had feared that more onerous structural remedies—such as selling assets or supporting a new entrant—would be required. In this sense, Vodafone and Three should be encouraged by the tone of the CMA’s report, which appears more open to the merger than I was expecting.

“The ball is now firmly back in the court of Vodafone and Three. They need to quickly assess these proposals and make further suggestions ahead of a final deadline in early December. The next three months may prove to be the most pivotal in the history of the UK telecoms sector.

“I retain my view that approving the merger would be the best outcome for the future of the UK mobile industry. A combined Vodafone and Three can make more efficient investments and push BT and Virgin Media O2 to raise their game too, boosting the market’s long-term connectivity credentials.”

Said analyst Paolo Pescatore“The CMA’s findings on the Vodafone UK / Three UK merger do signal a potential pathway, importantly through behavioural rather than any structural remedies over and above the £11bn network investment commitment to be enforced by the regulator. As expected, the CMA focuses primarily on pricing implications for consumers, but focusing only on price ignores the fact that the merger will bring much needed investment across the UK. Even if the price increase is to be believed, which the companies dispute, it’s pence per month and doesn’t in anyway outweigh the benefits of building the network the country deserves. Noth parties are demonstrating that this is genuinely in the interest of UK plc, the economy, and users which paves the way for a far stronger three player market than the current imbalance.”

Matthew Howett, founder & CEO of Assembly Research  
is optmistic the merger will go ahead and that this is just a temorary stumbling block:

“A deal of this size and scale was alway going to face intense scrutiny from the CMA, and it was fanciful that it could have been approved without any sort of remedies. The main impediment to it going through was the imposition of a structural remedy – anything that facilitated a new entrant and therefore re-created the problem the merger was trying to solve. With the CMA essentially having taken that off the table, for the first time we can see a pathway for the deal to complete. 

“Concern over the impact of the merger on prices for consumers was predictable but is remediable. While prices in the UK are already some of the lowest among European peers (including the US and Japan), it’s possible to see a workable commitment to social tariffs, or contracts that give protection to the most sensitive to any rise in prices, even if by a small amount”. n 

Around 800 operators worldwide now support eSIM technology, and there are more than 200 eSIM-enabled devices

CCS Insight carried out research into eSIM usage in the UK, the US, Germany, Spain, and Australia involving at least 1,000 people in each market. Four in 10 people said they had heard of eSIM. When the concept was explained, over three-quarters of respondents said they would be interested in eSIM. However, some of the main benefits were not fully understood.

One of the findings was that, until recently, many telecom operators were unwilling to support eSIM in smartphones, fearing a loss of relevance to big tech rivals, the encouragement of new competition, and a reduction in roaming revenue

The catalyst for growth was the arrival of the first eSIM-only iPhone

The report shows that the catalyst for growth was the arrival of the first eSIM-only iPhone 14 for the US market in 2022. This pushed other operators to offer the technology, leaving many customers with little option but to embrace it.

“eSIM is a technology that’s ready to go mainstream. Driven by Apple, but with growing support from Android-powered device manufacturers, the number of compatible mobile phones will more than double from a billion at the end of 2023 to 2.5 billion in 2028. Over the same period, the share of global sales of smartphones that support eSIM technology will jump from just over a quarter to over half” said Luke Pearce, Senior Analyst.

Kester Mann, Director of Consumer and Connectivity, added: “We found a shift in sentiment among operators to be more accepting of the technology and increasingly optimistic about the new opportunities it can enable. These include supporting more digital customer journeys, attracting new customers, improving environmental credentials, and achieving major cost savings, estimated by the research to total more than $3 billion in the industry by 2028.”

Apple’s strong push has propelled North America into an early lead in eSIM.

“Apple’s strong push has propelled North America into an early lead in eSIM. The region already hosts over half of all global eSIM users, with 50 different providers supporting the technology. Now all industry eyes are on whether Android manufacturers will accelerate their efforts to close the gap. This includes leading Chinese brands, which have so far only introduced eSIM on a limited number of international models because of regulations barring the technology in their home market.

“One of the growing uses for eSIM assessed in the report is international roaming. Analysis shows that a flood of specialist providers have entered the market in recent years, offering more convenient and affordable options to access mobile data when traveling”.

“The report charts strong growth in the number of roaming eSIMs set to be provisioned over the next few years, after eSIM roaming doubled in 2023. This is supported by CCS Insight’s own consumer research, which shows that one in 10 people in five leading markets have already used an eSIM for roaming. Of those yet to do so, more than 60% said they would consider taking an eSIM for roaming in the future.

“This highlights a major challenge for the industry. As momentum for eSIM gathers pace, focus should increasingly turn to supporting people embarking on new customer journeys, particularly those who are less confident using new technology. It could be that those companies best able to guide their customers along this path will end up being the most successful”

Sky Mobile has announced it has hit three million customers and is now the fastest-growing mobile provider in the UK.

Kester Mann, analyst, CCS Insight, commented on the news: “Sky Mobile should be congratulated on reaching three million customers in an already saturated market.

“It is a notable achievement given that total mobile connections in the UK have only grown around 5% since Sky Mobile launched five and a half years ago.” 

Unused data

Following this milestone, Sky Mobile has also published new research which highlights the impact unused data has.

Called ‘the data consumption gap’, Brits lose around £3bn every year due to having unused mobile phone data trashed at the end of the month.

Sky Mobile allows customers to roll the data they don’t use and store it in a piggy bank for up to three years, which enables them to use it later, share with friends or exchange for rewards.

The average mobile user in the UK is losing 94GB of paid data each year- equating to a loss of £84 a year per person and a total loss of £3bn.

The research reveals that Brits have 44 per cent of their data left over at the end of every month, but 39pc say they pay for more data in case they run out.

As 52pc say they want to spend less on their mobile contract during the cost of living, Sky is encouraging Brits to check their mobile plans to see how much data they are using and whether they can switch contracts.

Paul Sweeney, managing director, Sky Mobile said: “At a time where we are all trying to alleviate financial pressures, it’s more important than ever to ensure your mobile contract provides good value. We should all be checking our contracts to ensure our mobile provider is giving us the flexibility to evolve as our needs do.”

“Our focus from the beginning has been about creating value and fairness for our customers and this is what we continue to do day in, day out for our three million customers.”

On day two of CCS Insight’s predictions, director of consumer and connectivity Kester Mann
conducted an interview with Marc Allera, CEO of BT’s Consumer Division.

Q) The cost of living crisis is the topic on everyone’s lips at the moment. Is it right that the telecoms industry is looking at implementing inflation based price rises during difficult times and what is BT doing to help customers that may be struggling to pay their bills?

This is an important topic and we can see businesses and consumers under a lot of pressure. Pretty much every product they buy, trade and consume are going up in prices, Many of which are exceeding inflation. We recognise that and we understand the importance of working with our customers and are doing everything we can to support them. However, as an industry what we have to recognise is that telecommunications is a very small proportion of consumers’ spendings. There are much greater areas of their income that are consumed by things like energy and council tax. So telecommunication as an industry is providing really good value for money and it’s a product that consumers are using 50 per cent more of, every single year as well.
More or less for the same money, the ARPU of our country is amongst the lowest in Europe and significantly lower than the US. So I think consumers are getting a great deal out of telecoms, but like any industry right now, we are also experiencing price pressure. So we created a price mechanic that allows us to pass those benefits to consumers when prices aren’t increasing so much, as they did a couple of years ago, but also allows us to have some buffer when we have prices that are increasing and we are not immune. And I think the sector has to find a way to build a more resilient infrastructure. The UK needs a more resilient infrastructure. We definitely don’t want what happened in the energy infrastructure where everything was just focused on price and not value for money. That’s why I think it’s very important to have a clear pricing mechanic that’s linked to the costs that go up and down in our business. We recognise these are exceptional times but I think the narrative from too many people in our sector has focused disproportionately on price and not value for money or resiliency and innovation and not getting out of that cycle.

Q) Would you say that BT is a bit more exposed during hard times and customers may look to downgrade and take out a subscription with a more budget provider?

In a recession you do see pressure on price from certain segments of the economy. Our stand has always been you can buy cheaper but you can’t buy better, we do focus on quality of networks, service, experience, other value added services for consumers so they feel like they are getting great value for money. As consumers are bringing together broadband, mobile and TV and other services we believe we can provide value for money, so it’s not something we are complacent about. We have got a broad set of tools to play with, we are not a pure-play broadband, pure-play mobile or pure-play TV. We’ve got everything in the locker and a little bit more, to create bundles and packages and value for money for consumers and are certainly not complacent. I think the next 12-18 months are going to be very challenging for consumers.

Q) What about customers that need extra help?

At BT we recognise its our responsibility to serve all kinds of customers, but I don’t think the burden should fall exclusively on us, but we’ve been happy and proud to lead the way on social tariffs on broadband and now extending it to mobiles as well and they are specially aimed at customers who are on universal credit and offering them a low cost option, if they are eligible for low costs, high quality connections which we know is important for them.

Q) You talked about EE expanding beyond the connectivity that it currently provides. Could you tell us a little more about it?

We made a couple of announcements. The first is that we are focusing all of our efforts now on convergence and leading in the home as we bring together broadband, mobile services together on our EE brand, but still BT is playing an important role for us particularly on stand alone broadband, landline and other services. We also announced that as part of that, EE will be looking to expand beyond services that traditionally are expected from us like broadband, mobile and TV, into new areas like home security is one area we will be moving into first and we’ll make some announcements to make about that in partnership with some very strong players and its very much our approach. So we like gaming, home security, insurance, and we think these are areas close to consumer homes, close to our home and we have a right to play.

Q) Historically the telecoms industry has been guilty for making things overly
complicated and we got a prediction this year that one operator moved away from
referencing technologies like 4G or 5G in some of its marketing. How do you feel about that and what is BT doing to make things more simple for customers?

That’s an interesting prediction, so much narrative is driven by the equipment manufacturers across the network manufacturers than the handset providers as well and that creates an awareness of categories in consumers minds. For example we have seen very high profile devices proudly saying this is a 5G device and customers not knowing what this is, but just thinking it is better and faster than 4G, so I think it would be a bold move to move completely away from that. I do agree that as an industry we make things very complicated, and one of the advantages we have and you’ll see over time is that with the converge core as broadband, mobile networks come together and are able to work much more seamlessly for consumers without them needing to proactively select the bearer that they need to get the connection from. We think we need to simplify things, but I’m not sure if we’ll go as far as completely removing the need for explaining these technologies because they are a shorthand for capability, safety, security and what you can and can’t do for people.

Where day one focused on the digital world, day two focused on digital communities.

Maria Bell, Senior Analyst at CCS Insight started off by talking about how the government and businesses need to work together to ensure employees are equipped with the right skills that allow them to advance in digital agendas in an ever evolving IT landscape.

With this in mind, she predicted that 2024 sees the inception of a UK school examination board focused on digital skills. 

“We predict discussions to begin between leading technology providers, the UK government and educators to create an examination board that ensures educational consistency and quality aligned with the country’s educational framework,” she said.

She then laid emphasis on how sustainability is becoming an important concept to many businesses. 

“With a strong appetite for carbon tracking solutions, two thirds of businesses have already made a public commitment to net zero emissions, with a further 21 per cent expected to do so in the next six months. Our next prediction is that by 2025, a new green certification will be displayed by websites, using low energy design and codes.

“We believe a new standard will emerge enabling websites, platforms and mobile apps to support a logo certifying their use of high contrast colours, darker design theme, standard typefaces and simpler cleaner codes.”

Bola Rotibi, Chief Enterprise researcher at CCS, also predicted that the drive for low carbon emissions would significantly increase over the next five years: “Just as we track the number of steps daily, we predict that by 2027 we will see the launch of mobile apps that enable consumers to track their carbon footprint in real time.”  

Crucial connectivity

Next, Kester Mann, Director Consumer and Connectivity, highlighted that as people, communities and organisations move relentlessly to an online world, the underlying connectivity becomes ever more crucial. 

“Telecom operators are central to this, but customers typically don’t care how or where connectivity comes from. One of our more provocative predictions this year reflects that stance.

“We reckon that by 2026, leading telecom operators move away from naming specific technologies in its marketing, and begin to position services under a broad banner of connectivity, instead of using terms such as 4G, 5G, full fibre and WiFi. It’s a move that will simplify tariffs, boost strategies around convergence and better reflect the connectivity demands of our increasingly digital lives.

“Within four years we predict that a standardised methodology to measure network performance emerges, which will make it easier to evaluate performance leaving less room for questionable assertions. Likely metrics would include coverage, latency, speed and reliability.”

He then talked about satellite broadband services to enable global connectivity, which was also discussed during last year’s CCS Insight’s predictions. 

“Just under half of the world’s population aren’t yet online, including 450 million people that live in areas without coverage of mobile broadband. Last year I talked about satellite broadband as an option to narrow the divide and it proved one of the hottest topics of 2022.”

Mann said US provider AST SpaceMobile is developing the first space based cellular broadband network accessible directly by standard mobile phone in use today. 

“It’s AST’s effort to focus on broadband targeted at popular developing markets with often patchy telecoms infrastructure that inspire us to predict that by the end of 2026 more than 25 million people access the internet through a mobile phone connected directly to satellites. 

Telecom costs

“A separate but related prediction is that by 2025 a telecom provider claims to offer global coverage. This whole world offer would be largely achieved through satellite connectivity, supported by its own fixed line of mobile networks on the ground and extensive roaming partnerships.”

Mann stated that the pressure on operators to invest in networks to satisfy soaring demand has stirred debate as to whether large technology companies should shoulder some of the costs. 

“However, this isn’t a new debate but the European Commission now seems to be ready to take the proposal seriously. Earlier this year it pointed out that telcos have invested €500 billion in European networks over the past decade, meanwhile over the same period, the top six technology companies made a negligible contribution, despite generating 57 per cent of the traffic. 

“This year we are predicting that by 2025 at least one European country mandates that large tech companies contribute to the cost of telecom networks. The landmark decision would be controversial and difficult to implement but also goes somewhere to address the clear imbalance between the heavily regulated network operators and the thriving web giants that rely so intrinsically on the connectivity they provide.”

In June 2021, Virgin Media O2 officially launched as two of the biggest networks merged to create a company that offers fast, widely available broadband.

At the time of the merger, it combined O2’s 34 million mobile users and Virgin Media’s 5.3 million customers in a £31 billion deal and outlined its plans to invest at least £10 billion over the next five years.

Just over a year later, the brand has achieved milestones in connectivity and gigabit rollout, and has even introduced a joint venture called ‘Volt’ which rewards customers for having an O2 pay monthly plan and Virgin Media broadband.

CCS Insight director of consumer and connectivity Kester Mann says it may be too early to say if the Virgin Media O2 merger has been successful, but that it has achieved a lot in 15 months.

“It’s launched the Volt proposition, focused on gigabit broadband rollout, established the fibre joint venture recently, and it’s steadily making inroads into areas like private networks and small businesses,” he says.

“It’s done a good job in making a presence in the market and pushed hard on the marketing and brand awareness.”

Challenges from Ofcom and CMA

Counterpoint Research VP and research director Peter Richardson and associate director Jan Stryjak agree that it may be too early to tell, but it appears to be going well.

“A recent study by RootMetrics revealed that all four major UK mobile operators, including Virgin Media O2, improved download speeds, reliability and latency of their networks in the first half of 2022,” both says.

Meanwhile, IDC research manager Richard Thurston is more certain on the merger’s success.

“We’ve seen Virgin Media O2 win deals in mobile private networks, which is a significantly growing market, and one which we’re excited about because of the multitude of use cases and the innovation in this space,” he says.

Ofcom and the Competition and Markets Authority gave Virgin Media O2 the green light to consolidate despite former potential mergers being blocked.

Three’s attempted acquisition of O2 in 2015 was blocked, but it seems that regulators are becoming more lenient in an ever-changing industry.

“Ofcom is perhaps softening its stance and will want to see the mobile telecoms market thrive despite the turbulent pressures the industry is facing,” Thurston says.

But Mann believes that Ofcom and the CMA awarded Virgin Media O2 the go-ahead because both companies specialise in different aspects of the market.

“The main thing is that we’re talking about a predominantly mobile company and a predominantly broadband company, so it’s two separate markets and no concern that there is a player that can dominate in one particular market,” says Mann.

“The case with Three and O2 was that it would create a significant player in the mobile market and that’s why it got blocked by the CMA, but broadband to mobile mergers should get a good chance of getting through.”

Richardson and Stryjak agree that the Three and O2 merger was most likely blocked because they are both mobile network operators, but they also believe that the regulators are starting to change their views on mergers in general.

“We suspect regulators are more lenient to mergers following the COVID-19 pandemic, which highlighted how important connectivity is to people.

“If a merger promises to improve connectivity and quality of service, then regulators seem to be happy to allow it these days.”

Three and Vodafone to merge

In recent years, consolidation in the telecoms space has become more common, and Thurston says this continues to be a trend across Europe.

“As recently as a month ago, Orange and Masmovil in Spain signalled their intent to combine their operations,” he explains.

“Telecoms is capital intensive, and operators are facing pressure to digitally transform and remain relevant as consumers and businesses face a multitude of network choices.”

Mann adds that the deal between Orange and Masmovil is mobile to mobile, and if this is approved then it gives confidence for other mobile operators to merge.

One merger that could go ahead pending regulatory approval is between Three and Vodafone, which would combine the UK’s third and fourth largest mobile network operators.

“The two companies have made no secret of their interest to consolidate,” Mann says.

“The leading motivation to join forces is scale. In telecommunications, the most successful companies tend to be the largest; bulking up would offer many synergies and cost-saving opportunities.

“Under the status quo, it’s hard to see either operator growing enough organically to get close to challenging BT and Virgin Media O2 for size in the UK.”

But he explains that the companies need to make a deal that works for both, and that regulation will be a major hurdle.

Meanwhile, Thurston thinks Three needs to offer more if it wants to merge with an operator like Vodafone.

“As a self-styled connectivity player, Three has achieved a reasonable set of results, primarily through growing consumer market share,” he says.

“But this is simply not enough going forward as successful telcos evolve to become digital service providers.

“Three will need to grow its business offering as a priority.”

Reasons to consolidate

Three UK’s CEO Robert Finnegan and Vodafone’s chief executive Nick Read have been vocal about the need for more consolidation within the telecoms industry, so it is no surprise that the two mobile companies are in talks about a potential deal.

In a previous Mobile News article in 2020, Finnegan spoke about the need for consolidation: “I think there are too many players; I don’t think it’s good for competition or the customer because investment into the industry is not as much as it would be in a more functional market.”

Earlier this year, Read stated that merged businesses could be attractive to investors and that there is a case for Vodafone to consolidate in the UK, Italy and Spain.

It seems that these operators are keen to strike a deal and Richardson and Stryjak believe that merging with another company can benefit operators in various ways.

“With a high-cost, high-capacity network, the important metric for mobile network operators is to have as many paying customers as possible,” they say.

“It’s about economies of scale- the more customers you have, the lower your marginal operating costs will be.”

They also say that from a customer’s perspective, it doesn’t matter who offers the tariffs as long as there is plenty of choice and some competition at wholesale level.

“As radio spectrum is limited, there needs to be strong regulation to ensure that this scarce resource is used properly and ensure fair competition- but otherwise three operators is likely as good as four.”

Mann thinks consolidation can benefit Three and Vodafone as bigger telecoms companies tend to be the most successful.

“There’s more purchasing power and more customers to sell to, so scale is a major reason for consolidation,” he says.

“You look at a competitive market like the UK, taking a player out of the market is one less provider to compete with.

“There’s also plenty of opportunity in terms of pushing into new markets and cost savings from bringing two companies together.”

Customer concerns

But it’s not just the operators that need to benefit from consolidation, customers also need to get the best out of it.

Regulators need to weigh up options to determine the pros and cons of consolidation and the impact it could have on customers.

Richardson and Stryjak believe that there shouldn’t be any downsides from reducing the competition from four to three players, as long as the deal is strong and fair.

“The only issue would be if the merger creates a dominant player, which could impact competition and therefore be bad for consumers,” they say.

“Looking at Q2 2022 mobile connections numbers, Vodafone UK and Three combined would create a player with a market leading 30 per cent share- but this is similar to Virgin Media O2 and EE with a 28 per cent and 26 per cent share respectively.”

Mann says regulators will always thoroughly investigate and analyse the benefits of mergers and reduce competition in the market.

“The argument for consolidation is that potentially having fewer providers means you can be more focused with investments, build out better quality of networks, infrastructure and therefore a better service to customers,” he says.

“The cons would be that this could be an opportunity for operators to put up prices as there are less of them, and could this impact customers?

“We’re already on the back of significant price rises from the spring, so would there be a concern of too much price rise and the competition being harmed to the detriment of customers.”

Potential broadband mergers

Another speculated merger is between TalkTalk and other telecoms companies, as Virgin Media O2, Sky and Vodafone have all been recently linked to the company.

Virgin Media O2 has put in an offer to buy TalkTalk, which would value the broadband provider at £3bn and will put pressure on those who want to offer an alternative offer.

Not much has been reported regarding offers from Vodafone and Sky, but we do know that Vodafone is facing pressure from its investors to consolidate- whether that is with Three or TalkTalk.

Mann explains that the TalkTalk acquisition is speculation at this point in time and that different operators have different motives.

“Virgin Media O2 could make a move because it comes down to scale and more customers as it can access customers that use the Openreach network that TalkTalk uses,” he says.

“For Sky, it would be about being a bigger player and being a threat to BT.

“Vodafone appears to have played this down and may not be in the running anymore, but we know it has ambitions in broadband.”

The acquisition of TalkTalk could change the telecoms space, but this all depends on which company ends up buying it.

Richardson and Stryjak think that if mergers become more common, then the market will end up evolving.

“Ultimately, we likely reach a point where we have a small number of integrated telecom operators that can provide fixed broadband, mobile and TV services,” they say.

“These can be packaged in multiple configurations to provide end customers with a huge range of options to suit particular needs and interests.”

Mann is a bit more uncertain about what the telecoms space would look like if TalkTalk is acquired.

“If it was VMO2 or Sky, they’re fairly premium brands so it would be interesting to see how they position TalkTalk,” he says.

“But TalkTalk customers get good value for money and they’d be keen to ensure that if it was acquired then they can get a similar level of service that they are getting at the moment.”

Virgin Media O2 has put in an offer to buy TalkTalk which would value one of the UK’s biggest broadband providers at around £3bn.

Discussions have begun between the two companies, although sources say this is at an early stage and on a non-exclusive basis. 

Virgin Media O2, who is owned by Telefonica and Liberty Global, submitted a bid for TalkTalk a few weeks ago as reported by Sky News.

TalkTalk’s website says it has 4.2 million customers and 2.4m fibre connections across the UK, and founder and chairman Sir Charles Dunstone and investment company Toscafund believe the company is currently worth £3bn.

Other rivals have hinted that they want to acquire TalkTalk, and the scale of the acquisition would be huge due to TalkTalk’s worth, and a formal offer from Virgin Media O2 will increase the pressure on Vodafone who may launch a counter bid.

The deal will become the latest consolidation in the telecoms market where those in the industry have called for more to be done to find savings to invest in upgrading Britain’s digital infrastructure. 

Means for acquisition 

CCS Insight director of consumer and connectivity Kester Mann commented: “The primary motivation to buy TalkTalk would be to build scale. In telecoms, the most successful companies tend to be the largest and bulking up would offer clear synergies and cost-saving opportunities. 

“As Virgin Media O2 embarks on an expensive upgrade of its entire cable network to full fibre, the more customers it can connect, the more cost-effective this process will be.

“The deal would not only create a bigger rival, but threatens an important source of income for Openreach, for which TalkTalk is a strategically important customer.

“TalkTalk could see itself at the centre of a bidding war with Sky and Vodafone also rumoured to be interested. 

“With the UK ripe for further consolidation amid much speculation of a potential merger between Three and Vodafone, the next big deal is only a matter of time.”

A new consumer study carried out by analyst firm CCS Insight has highlighted the market for trade-in and refurbished phones has continued to increase.

The survey, which is CCS Insight’s fourth annual study, polled 1,000 mobile phone owners aged 16 and over found that the amount of people either selling or part-exchanging a used mobile phone has increased.

In 2019 the same amount of respondents were asked ‘have you ever sold or part-exchanged a used mobile phone?’, to which the response ‘no’ accounted for 63 per cent. This number dropped to 54 per cent last year.

The study  also found that people saying ‘yes’ to the question has grown in every other category in relation to who they’re selling the used mobile to.

CCS Insight director of consumer and connectivity Kester Mann said: “The survey highlights significant changes how UK consumers buy mobile devices and services.

“The landscape is being redrawn by multiple factors, including device trade-in, a burgeoning secondary phone market, the trend to online buying, new distribution channels, environmental considerations and lengthening replacement cycles. New and existing suppliers need to respond to these changes to stay ahead of the competition.”

Loyalty

The study further examines consumer buying patterns, in particular around brand loyalty.

It found that nearly two-thirds of people said their brand of phone is the same as their previous one, including almost 80 per cent of iPhone owners.

And when deciding to buy a new phone, nearly half don’t consider buying other brands.

Unsurprisingly the survey also revealed that the pandemic led to more than half of respondents (52 per cent) buying their phones online last year, compared to 45pc in 2020 and 41pc in 2019. Only 37pc said their current phone was bought in a shop.