The impact of consolidation on mobile markets continues to be a matter of debate. After all, a merger between mobile operators can drive diverse outcomes which are important to consumers: price; quality; and service innovation. At the same time, the actual impact of a merger depends on multiple factors which could leave consumers better off… or worse off.

It’s by no means a simple issue of arguing industry consolidation is good or bad. It’s a more complicated dynamic.

That’s why competition authorities have such a challenging job when assessing the impacts of a merger, making it so important to look at the outcome of past consolidation. If we understand how previous tie-ups actually affected consumers, we can better predict the effect of proposed mergers. Then we can take informed decisions to the benefit of consumers. Simple enough, right? Not quite.

To date, the evaluation on the impact of mergers on prices has produced mixed results. While some studies find significant price increases [see footnote 1], others do not find any [2]. Some find decreases in prices [3]. As for the impact of mobile mergers on investment and quality, the overall findings are clearer: no study has found that higher market concentration reduces operator investment. Instead, more recent studies have found a positive impact of mergers on network coverage and network speeds [4].

Of course, mergers in the mobile sector are back on the agenda of competition authorities worldwide. US regulator the Federal Communications Commission (FCC) is studying the clearance of a merger between the third- and fourth-largest operators in the country, T-Mobile US and Sprint [1]. The European Commission meanwhile, is looking at the merger between Tele2 and T-Mobile in the Netherlands [2]. If cleared, the merger would reduce the number of players in the country from four to three.

Both mergers are being pursued in order to reach greater scale and realise cost efficiencies, which would enable faster, more cost-effective, rollout of new technologies including 5G.

BEREC
Wading into these waters is BEREC – the European regulators’ group. In a report, Post-Merger Market Developments: Price Effects of Mobile Mergers in Austria, Ireland and Germany, published in June (the most recent four-to-three operator mobile mergers in Europe), BEREC aimed to shed light on how to think about future mergers.

And what did it find?

On prices, it sees an increase: “there is at least some evidence that retail prices for new customers increased due to the merger”. On quality, it isn’t so sure, citing “uncertain long-run effects”. A combination of “at least some evidence” and “uncertain long-run effects” might seem less than compelling. Even so, there’s real reason to argue BEREC comes up short on actually looking at prices and quality; effectively getting the story wrong.

Let’s look at some examples on the pricing front:
Austria: putting aside the fact BEREC did not consider the late 2013 spectrum auction (which could have driven prices up), pre-merger prices in Austria were low compared to other countries and this means prices in Austria had less room to decrease, regardless of the merger.
Ireland: in some cases, BEREC might have found increases, but for most periods and tariffs analysed, the study admittedly did not find a significant effect from the merger on prices.
Germany: here, BEREC itself considers the evidence of price increases to be “not very robust”. And for MVNOs, which account for about 20 per cent of the market (and have an even stronger presence among low-usage customers), BEREC acknowledges it did not include data for them.

But, let’s put prices aside for a moment. When it comes to the impact on innovation and network quality, both hugely important for consumers, BEREC presents some basic trends in network quality in Austria and Germany. That’s great, but it’s not the same as actually detailing how the merger affected the observed trends. What’s more, it fails to compare network quality with other countries.

To be fair, that’s a lot to ask. But it’s also something the GSMA has spent time on. And what did we find?

A recent GSMA Intelligence (GSMAi) study, Assessing the Impact of Mobile Consolidation on Innovation and Quality, exploring the impact of the Austrian merger found it had significant positive impacts for consumers, with accelerated coverage of 4G by 15 per cent to 30 per cent and higher speeds for mobile broadband. In a separate study, Assessing the Impact of Market Structure on Innovation and Quality, GSMAi also found consistent results for Latin America, with consumers in more concentrated markets in the region experiencing better network quality. The results speak for themselves.

In summary, there is some convincing evidence of consumers experiencing better network coverage and quality as a result of a merger, but the impacts on prices are less clear and BEREC’s recent study does not add any clarity in that regard.

We are on the cusp of 5G networks being rolled out. These bring with them the promise of lower costs, better and new services for consumers. If mergers can facilitate these investments the result can be a positive impact on consumers.

There’s a lot at stake, and competition authorities that are considering proposed mergers clearly have a tough job ahead. Will they get it right?

– Pau Castells, director of economic analysis, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] [3] CERRE 2015 [4], DG Comp 2015 [5], RTR 2016 [6], BWB 2016 [7]

[2] [8] Frontier Economics 2015 [9]

[3] [10] Houngbonon 2015 [11] and HSBC 2015 [12]

[4] [13] GSMA 2017 [14], GSMA 2018 [15]

[1] https://www.mobileworldlive.com/featured-content/top-three/t-mobile-sprint-make-merger-case-to-fcc/
[2] https://www.mobileworldlive.com/featured-content/top-three/ec-delves-deeper-into-t-mobile-tele2-dutch-deal/
[3] https://www.mobileworldlive.com#_ftnref1
[4] http://cerre.eu/sites/cerre/files/150915_CERRE_Mobile_Consolidation_Report_Final.pdf
[5] https://publications.europa.eu/en/publication-detail/-/publication/0ba81733-f193-11e5-8529-01aa75ed71a1
[6] https://www.rtr.at/en/inf/Analysis_merger_H3G_Orange
[7] https://www.bwb.gv.at/fileadmin/user_upload/PDFs/BWB2016-summary-Ex-post_evaluation_of_the_mobile_telecommunications_market.pdf
[8] https://www.mobileworldlive.com#_ftnref2
[9] https://www.gsma.com/publicpolicy/wp-content/uploads/2015/05/Assessing_the_case_for_in-country_mobile_consolidation.pdf
[10] https://www.mobileworldlive.com#_ftnref3
[11] https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=EARIE42&paper_id=108
[12] https://www.orange.com/fr/content/download/33263/1086075/version/2/file/Supersonic+13.04.15.pdf
[13] https://www.mobileworldlive.com#_ftnref4
[14] https://www.gsma.com/publicpolicy/wp-content/uploads/2017/07/GSMA_Assessing-the-impact-of-mobile-consolidation-on-innovation-and-quality_36pp_WEB.pdf
[15] https://www.gsmaintelligence.com/research/?file=0ba00039b123efd2d6f9a235d1b29074&download

In 2017, with the inaugural Mobile World Congress (MWC) Americas on the horizon, I penned a column on the topic of what it would take for the new event to be a success. What would be considered success?

Given the stakes (a reboot of the CTIA’s flagging annual show), it was a natural question to ask. After all, we all knew that when the dust settled, lots of people would be asking whether or not it had been successful and what that would mean for future iterations.

The stakes are not nearly the same for MWC Shanghai: it is no longer a new show. But newness shouldn’t be the only trigger for thinking about how we’ll look at the concept of a successful show. If nothing else, it’s a good launch pad for asking what we want to see. So, with MWC Shanghai just a week away, let’s do just that. Let’s ask what success will look like. What needs to happen and what do we need to learn?

IoT: Coming to a manhole or Yak near you
In the somewhat trumped-up war between Cat-M and NB-IoT, China has largely been a faithful NB-IoT lieutenant. Along with that has come a focus on driving IoT into new markets and new use cases and new applications. This traction is important for more than any one country or operator alone. Putting the use cases on display is important for showing operators and enterprises what is possible with IoT. It’s important to remember, however, that innovative use case demonstrations are just that – demos. They need to be followed-up with proof of a business case behind them. MWC Shanghai will doubtless execute on the first part: it will put the use cases on display. It will also need to execute on the second part of showing how to make money from them.

5G verticals: Take Your Pick (just maybe not today)
Where US operators have gained a lot of attention for their moves around fixed wireless access 5G, Asian operators have been putting their focus on mobile 5G. There’s a consumer component to that, but there’s also an enterprise component. As with China’s focus on NB-IoT, there is a real interest in tying 5G to success in the enterprise. But that’s not news, is it? Tackling vertical markets is a core part of the 5G story for operators everywhere. For MWC Shanghai to add to this narrative, it will need to do more than just talk up the opportunity for 5G in vertical markets. It will need to give evidence of how operators can execute (are executing?) on it.

AI Insights: Skynet versus Alexa versus NUGU
Even if you’re a casual follower of artificial intelligence (AI) trends and only read the mainstream media, you know that AI is a big deal in China. Headlines including Why China will win the race for complete AI) dominance?; How China is trying to become the world’s leader in AI?; How Chinese tech giants like Alibaba are bringing AI to neighbourhood corner stores show it is a national agenda.

You’ll also know there are myriad AI use cases, ranging from the apocalyptic to the mundane. Carriers can slot themselves into most of these. Take, for example, smart speaker offerings from SKT or Telefonica. Whether they should, and how they can, benefit from the work going on in China is another story MWC Shanghai will hopefully shed light on.

Consumer insights: more than phones and drones
One draw of holding a mobile-focused event in Asia is first-hand exposure to innovative consumer business models, services and devices. That means the phone you’re possibly reading this on, sure. But it also means the wacky stuff you won’t see at home: services and devices that might seem experimental today but commonplace tomorrow. That’s why there will be consumer technology tours. That’s why there will be an augmented and virtual reality (AR/VR) expo. And that’s why there will be a Chinese Skateboarding League demo.

Yet, where so many consumer demands and trends have come and gone without operators figuring out their role, seeing a clear link between this consumer technology and service provider business models (connectivity or otherwise) will be important for making this more than just fun to watch.

This might all seem like a lot to ask. Or, it might not seem like much at all: personally, I’ve got no doubt that Shanghai will deliver on all of this in some form. It really depends on how much you listen, who you talk with, and what you make an effort to actively learn about. Between the sessions, and workshops, and meetings, there will be a lot going on in Shanghai next week. That’s because there’s a lot going on in the industry and a lot of the industry’s innovation is rooted in Asia.

No matter how you define success, it should be a fun week.

– Peter Jarich, head of GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

The IoT has captured the public attention for better or worse. Yet, while news headlines focus on the billions and billions of consumer devices which will be connected (robots, cars, fridges, drones and so on) this is just one part of the story.

Purely connecting devices isn’t really what IoT is all about. Rather, it is about the data these devices generate – the insights derived from them and acted upon in order to create value and benefit consumers, enterprises and a wider society.

So now to answer the billion dollar question: how big is IoT?

As you’d expect from any well-hyped market, there are many, wide-ranging predictions out there. Industry observers might remember claims there will be 50 billion connected devices by 2020 (that is in two years from now…just saying). More recent forecasts point to one trillion IoT devices being built between 2017 and 2035. Of course, we have our own numbers: building on the 7.6 billion IoT connections (cellular and non-cellular) in 2017, we see the market growing more than threefold to reach 25 billion in 2025. That’s a long way from a trillion, but it’s an impressive number nonetheless.

The vast majority of these IoT devices – typically in indoor environments – are connected by unlicensed radio technologies, designed for short-range connectivity (Wi-Fi, Z-Wave and Zigbee). Licensed cellular IoT connections, though a minority of connections, will see massive growth – from 600 million connections in 2017 to 3.1 billion in 2025. For those keeping score, this translates into 12 per cent of connections being served by cellular networks. The bulk of those licensed cellular connections (60 per cent) will come from Mobile IoT, as we like to call NB-IoT and LTE-M.

[1]

While 25 billion might be a big, flashy number, what’s bigger than a billion? A trillion! And, come 2025, we see the IoT market as worth just that – $1.1 trillion.

Where will this money come from? Two-thirds will come from platforms, applications and services. Professional services will grab another 27 per cent. This leaves 5 per cent for connectivity, declining from 10 per cent today.

Depressing, right?  Well, it is if you’re a connectivity provider.

However, it’s not all doom and gloom for operators. There’s nothing stopping them from moving further up the value chain and beyond a connectivity sweet spot. In fact there are plenty of strategies and recent examples to demonstrate just that.

Enterprise pull-through: Operators have existing relationships with enterprises through the provision of communication services. These can be leveraged. In fact, integrated operators with fixed and mobile assets have sought to expand on their traditional role within the enterprise, leveraging existing sales channels to supplement communication services with broader ICT services, including cloud, security, data analytics and now IoT services. A number of operators have already expanded their IoT capabilities beyond connectivity as well. Recent weeks featured some hard-to-come-by reported figures on operators’ IoT revenue, which although aren’t impressive, indicate operators have strategies in place on how to gain a foothold in this fast growing market.

End-to-end solutions: Strengthened relationships with enterprise clients allow operators to upsell and bundle in services to play an end-to-end role in IoT service provision. In Q1 2018, KPN noted its IoT service offering, based upon its KPN Things platform, drove a 40 per cent year-on-year revenue increase. KPN’s platform combines IoT connectivity with additional services such as data and analytics, consultancy services and hardware. By offering modular building blocks and reusable solutions, and moving towards plug and play to avoid bespoke solutions, operators can easily scale up.

Mergers and acquisitions: A tried and trusted route to market is M&A to build E2E solutions. For example, Verizon’s acquisition spree started in 2012 when it bought Hughes Telematics. Recently, it resulted in the creation of a dedicated telematics unit, Verizon Connect, which also integrates its most recent acquisitions (Fleetmatics and Telogis) and positions Verizon as one of the leading telematics providers. Verizon reported $1.1 billion in IoT (including telematics) revenue in 2017, a 40 per cent year-on-year increase, equivalent to 1.2 percent of revenue, up from 0.5 per cent in 2013.

Partnerships: Another way to diversify IoT revenue is to form partnerships across the IoT value chain. During MWC 2018 Vodafone announced V-Home by Vodafone, a suite of services which combine the V by Vodafone consumer IoT system [2] with Samsung’s Smart Things open platform and includes services such as connected car, security cameras and pet tracking. Vodafone plans to expand its current country and products coverage, and launch an online marketplace for developers. This approach allows operators to address segments in which they lack a deep understanding of the market and sell services together with partners.

IoT is viewed as a key growth story for operators. However, the opportunity will not just fall into their laps. They need to chase it.

– Sylwia Kechiche, principal analyst – IoT, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://www.mobileworldlive.com/wp-content/uploads/2018/05/Picture5.png
[2] https://www.mobileworldlive.com/featured-content/home-banner/vodafone-launches-european-consumer-iot-play/

The recently announced tie-up between Sprint and T-Mobile US [1] attracted widespread commentary, with opinions polarising around two opposing camps.

Consumer champions and a number of industry commentators have raised concerns about a potential reduction in competition in the US mobile market and the specific risk lower income consumers, in particular, will lose out as prices rise [2].

In contrast, T-Mobile and Sprint (and some commentators) have been keen to promote the deal as an enabler for jobs and investment, and specifically as a major catalyst for 5G deployments in the US. In the words of T-Mobile CEO John Legere: “Global tech leadership for the next decade is at stake…only the combined company will have the network capacity required to quickly create a broad and deep 5G nationwide network in the critical first years of the 5G innovation cycle – the years that will determine if American firms lead or follow in the 5G digital economy.”

It is worth taking a step back and seeing the deal for what it is: a classic case of mobile consolidation between two challenger operators. Unlike the previously rejected AT&T and T-Mobile merger in 2011 [3], the current deal would see the number three and four players consolidate to create a potentially more effective competitor with greater scale.

Despite the success of T-Mobile’s “uncarrier” strategy and resultant market share gains over the last few years, along with a recent improvement in Sprint’s own operating metrics (after several years of market share losses), both companies remain sub-scale relative to the two dominant players. AT&T and Verizon jointly control just under 70 per cent of the market’s total service revenues (see image below, click to enlarge), with scale benefits also allowing them to generate higher EBITDA and free cash flow margins.

[4]But, beyond the fact of the matter, what else can we say? Are there any lessons which can help sort out the polarised consumer-centric versus investment-centric views? While we might not be able to crown either camp a winner, there are interesting parallels with the mobile operator merger completed in Austria in early 2013 which took the country from four to three carriers.

In a highly competitive market with aggressive price competition, two smaller players (Orange and 3 Austria) were struggling to gain scale and justify network investments necessitated by the upgrade cycle from 3G to 4G. The merger was ultimately approved but this was contingent upon the imposition of a number of remedies [5]. These included the sale of some spectrum holdings; the opening up of the network to new MVNOs; and the reservation of new spectrum for a planned new entrant network operator. The latter remedy did not ultimately take effect as no fourth player entered the market.

As part of the merger approval process, 3 owner Hutchison made a number of claims in support of the deal, including that it would help to deliver a number of efficiencies including improved 4G coverage and quality of services. These claims were rejected by the competition bodies as not passing the burden of proof.

The traditional approach by European competition authorities when reviewing this, and similar, mergers has been to focus on consumer pricing, particularly likely short-term movements in price. However, a recent report by GSMA Intelligence took a different approach [6], retrospectively reviewing developments in the Austrian market and with a focus on the impact of the merger on other consumer benefits, including network coverage and quality (upload and download speeds).

The results of the analysis showed that the four-to-three mobile merger in Austria intensified competition in quality-related aspects and the resultant three-player market delivered more widely available and faster 4G services than those experienced in four-player markets. It also showed that a merger between the two smallest operators in Austria allowed them to significantly outperform other operators in Europe with a similar position in the market.

There is then a clear potential read across from the situation in Austria in 2013 (with operators needing to invest in 4G network deployments) and the timing of the recently proposed deal between Sprint and T-Mobile. The US (and other regions) are in the process of contemplating the business case and rationale for 5G deployments and the economic benefits of potential technological leadership in the race to 5G. Certainly the merger pitch from two companies differs from the one normally given to the financial markets: promises of more jobs and higher investment levels as opposed to redundancies and cost savings.

Although the outcome of the regulatory review remains uncertain, the example of the Austrian mobile merger introduces a wider range of factors for consideration and could play to the more business-friendly environment promised by the current administration in the US. Certainly the Austrian example suggests that T-Mobile’s comments on 5G investment levels should not be dismissed lightly.

– David George, head of consulting, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.

[1] https://www.mobileworldlive.com/featured-content/home-banner/t-mobile-to-lead-combined-co-in-sprint-merger/
[2] https://www.mobileworldlive.com/featured-content/top-three/us_public_seek_price_cuts_from_merger/
[3] https://www.mobileworldlive.com/latest-stories/att-and-t-mobile-usa-end-39b-deal/
[4] https://www.mobileworldlive.com/wp-content/uploads/2018/05/gsmaisprint2.jpg
[5] https://www.mobileworldlive.com/featured-content/top-three/austria-operator-consolidation-deals-completed/
[6] https://www.gsma.com/publicpolicy/evaluation-hutchison-orange-merger-austria