If you follow the UK mobile industry at all then you can probably guess the identity of the dominant network operator. If you cannot, the answer is BT (BT.A), or BTEE for mobile purposes, after the £12.5bn merger of BT with Everything, Everywhere cleared last year, the UK operations of the former Orange and T-Mobile networks.
BTEE’s commanding position is by some distance too, as the following charts show, and that’s a big problem for Ofcom, the industry watchdog. It must balance encouraging competition without stripping the incentives for operators to invest in the networks.
Ofcom’s skill at meeting this objective will be seriously tested later this because the government will be auctioning off a swathe of new mobile spectrum, the 190 MHz (megahertz) of high capacity spectrum in the 2.3 GHz (gigahertz) and 3.4 GHz bands.
That amount is equivalent to roughly three-quarters of the spectrum auctioned off by Ofcom at the 4G spectrum auction in 2013. Spectrum in these bands is well-suited to 5G, ultra-fast connections as it can carry large amounts of data. It is this range of spectrum on which much of the internet-of-things (IoT) super-connected technologies of the future will rely.
How the spectrum cake is cut
You can see from this chart how the share of spectrum has rebalanced from relative equanimity between mobile operators in 2008 to the dominance by BTEE.
This concentration, potentially, makes the UK mobile market among the least competitive among the world’s top 50 nations by GDP. It’s a point that Three (the source of the data) is clearly keen to play-up given its relative spectrum poverty.
This is a very complex market and Shares spelt out in October last year the folly of jumping to knee-jerk conclusions based on spectrum stats alone. It is important for investors to understand that not all network spectrum is created equally.
A report by the Centre for Policy Studies, a pro-markets think tank, points out that it is estimated that ‘some mobile phone operators – particularly BT – do not use a considerable amount of their spectrum, while some of its competitors are constrained with their current share of Spectrum due to its limited nature.’
Presumably, Three is still paying a price for offering very generous data tariffs in the past (my former contract gave me unlimited data for £32 a month, and that included the financed cost of a top of the range phone).
Attractive deals for that stripe are no longer available and contract prices have been rising after years of deflation as network operators attempt to claw back value from past market share land grabs. Data from Ofcom suggests that the UK’s mobile phone market is currently competitive compared to EU counterparts, but recent trends in the cost of mobile phone contracts will be of concern to customers.
Between 2014 and 2015, the relative cost of typical mobile phone bundles has increased by 13.3% on average, according to analysis from Ofcom.
Matthew Hancock MP, the Minister for Digital and Culture, has emphasised that the Spectrum auction must ensure that the UK has a fully competitive mobile market. There is no doubt that Ofcom has a difficult balancing act in achieving this. On the one hand, they do not want to be seen to intervene unfairly in the market to the benefit of any interested party, but at the same time, it is in their remit to ensure that the spectrum market continues to be competitive.