- Mobile Operator Mergers - tony avian
Pyramid Research reports that July’s merger of mobile operators T Mobile and Orange into a new entity known as Everything Everywhere will in all probability result in drastic rearrangements of the UK’s mobile market.
Pyramid Research maintains that Everything Everywhere has presently about 21 percent of total market revenue and controls about 42 percent of the UK mobile services market, with this share to “improve significantly over the next 5 years”.
Senior Analyst (Pyramid) Stela Bokun stipulates that "As the two operators begin to benefit from economies of scale achieving a number of operational synergies, their share of subscriptions will see a significant rise of roughly 4 percentage points by 2015 and their share of the total UK telecom service revenue will grow by 3 percentage points by 2015,"
Economies of Scale
Traditionally telecom markets were regulated by governments and were usually serviced by incumbents like British Telecom or Hellenic Telecommunications (OTE). Such monopolies offered a set of advantages which included economies of scale leading to lower retail prices, and universal service where parts of the business that was profitable subsidized parts of the business that was not. With this universal service low density money loosing rural areas were subsidized by high density profitable urban areas.
The major issue with this structure and with monopolies in general, is proper government supervision and regulation including appropriate allocation of public funds. In addition, the lack of a competitive environment often leads to poorer service and obsolete technologies, management systems and structures, and general inefficiencies including overstaffing and very poor customer service.
On the other hand, many operators competing within a fixed market experience scale disadvantages the cost of which is often passed on to the subscriber leading to more costly service; the customer may pay more for service in a competitive environment than in a government regulator monopoly if all the different competitors are to remain profitable (and assuming the government monopoly is properly supervised from a cost perspective, and is allowed only normal returns) .
Thus the motivation for mergers.
Synergies and Efficiencies
Mergers are expected to continue in mature mobile markets where shares are relatively fixed. Pending regulatory approvals, mergers between mobile operators, a herculean task in itself as Edinburgh Business School Strategic Planning Professor Alex Scott notes, hope to benefit the operator from the resultant higher market base, and eventual synergies and economies of scale.
This coming mobile market merger mania will also open opportunities for technologies (where National Regulatory Agencies permit) facilitating base station co-siting and shared network solutions as well as flexible multimode base station systems servicing simultaneously multiple access systems such as GSM, 3G and LTE.
A Trend of the Future
Mergers also mean the relinquishing of operator licenses which may be granted to other existing or Greenfield operators ,thus allowing infrastructure suppliers to maintain or expand their present business levels and damping detrimental effects that mergers may have on affected personnel (due to synergies, efficiency downscaling etc…). Thus mergers may have a net positive or net negative effect on employment depending how government decides to act with the resultant "license" vacuum.
Mergers are a normal trend in industries markets and economies where capital is being regrouped, and are expected to continue in the next couple of years with the related effects to the concerned economies, industries, business, management, and labor.
Antonis Hontzeas - Antonis Hontzeas has been in the forefront of the Telecommunications industry for over twenty years. Tenures include positions ranging ...
