AH Tech Talk: What Does The Three O2 Deal Mean?

It's no fun running a cellular carrier in a developed and saturated market. Margins are shrinking, customer growth is minimal and competition is tough. Customers want to pay less for more, including access to the latest high speed networks. Traditional sources of revenue are drying up as apps and services such as WhatsApp, Facebook Messenger and Google Hangouts handle voice and text messaging over a data connection. Even the manufacturers and software developers are getting in on the act with the recent announcement that Google is to launch its own wireless service. Each of the developed markets had it's own unique quirks and a story of how the market is shaped the way it is.

For the British cell 'phone market, originally there were two large networks, Vodafone and BT Cellnet, joined by a smaller, more regional carrier, One-to-One. Orange joined this threesome in the early 1990s, followed by Three in the early 2000s, to give the island five carriers. BT Cellnet became Cellnet, became MMO2, became O2, became Telefonica O2. One-to-One became T-Mobile. And in 2010, Orange and T-Mobile merged to become Everything Everywhere, then EE, bringing the number of UK carriers down to four. The recent news to combine Three with O2 brings the number back down to three carriers.

Telefonica O2 is a great example of the sort of commercial pressures these carriers are going through. Two years ago Telefonica O2's UK network was in a mess. They had lost their iPhone exclusive contract and no longer benefited from the regular network quality kicking from Apple executives, and the network was creaking under the sheer volume of customers trying to use the service. O2 were relegated to being the second largest UK carrier, duking it out with Vodafone, after the merger between T-Mobile and Orange. O2 badly needed a 4G LTE licence to ease the load on the existing 2G and 3G networks. Worse, in a bizarre episode the UK regulator Ofcom had given EE the UK's first 4G LTE licence; dividing the UK carrier market into the haves (EE) and the have nots (everybody else).

EE's competitive technological advantage lasted for a year until the rest of the UK carriers were allowed to roll out their own LTE networks. EE have also successfully rolled out higher performance LTE networks across parts of the country with a bias towards the urban areas, as one might expect. Since then, we've seen a massive increase in British 4G LTE coverage. EE still have the largest LTE network and are in all probability going to retain this advantage for a couple of years yet regardless of any network merge between Three and O2. This is because Three and O2 have followed different 4G LTE network rollout strategies. O2 have invested a massive amount into improving their network to provide blanket coverage of 3G DC-HSPA and 4G LTE network in urban and rural areas alike. Three have instead used LTE to boost coverage in urban areas and have not added LTE coverage into rural areas. EE's 4G LTE rollout is closer to Three but a year ahead. Going forwards, 3-O2 could have the spectrum for higher performance LTE but they are behind EE in this respect.

The two super carriers are both going through a period of change; EE are in the process of being acquired by BT, British Telecom. Any merger or acquisition is disruptive to the business as systems need to be combined. EE are part way through combining the systems of Orange and T-Mobile. BT may well make a few changes to EE if they successfully buy the carrier (hopefully consolidating the large number of plans that EE offer in their stores). 3-O2 may be looking to consolidate their customer tariffs should they combine retail offerings, plus the entire back office systems, synergies and cost savings that could be made across the business. Everything from relationships with handset and network manufacturers through to deliveries to repair agents.

Where do Vodafone fit into this? They would be the smallest carrier with the least LTE coverage, but if the UK competition authorities insist that 3-O2 hands back some of their existing spectrum and frequency, Vodafone may be a beneficiary of this. They would still need to roll out their LTE network and have recently said that they have no plans to do this too quickly as it could cause spotty coverage and network not spots.

However, the underlying reasons why all of these carriers have merged goes right back to my introductory lines. Business is tough in the saturated mobile telecommunications markets. The smaller networks are struggling to be able to afford to remain competitive without the benefit of parents with deep pockets. Carriers must continue to build out their networks in conjunction with keeping their existing customers. We're seeing this across Europe and in the United States of America too. The merger between O2 and Three is more akin to the two carriers huddling together against the cold. And unfortunately, as part of this process I am expecting average prices to rise. Moving from five networks to four, then down to three, means that there's less competition. Market conditions are tough in the UK and one way of easing these is to increase the amount that customers pay.

Copyright ©2019 Android Headlines. All Rights Reserved
This post may contain affiliate links. See our privacy policy for more information.
You May Like These
More Like This:
About the Author
2015/07/b3c77426-3c33-4e58-aab1-23e9a0bfa03d.jpg

David Steele

Senior Staff Writer
I grew up with 8-bit computers and moved into PDAs in my professional life, using a number of devices from early Windows CE clamshells and later. Today, my main devices are a Nexus 5X, a Sony Xperia Z Tablet and a coffee cup.