Mallinson: Pan-European mobile integration is just a pipedream

Keith Mallinson

Brussels bureaucrats are reportedly competing against each other in public with proposed initiatives to make telecoms more pan European and cheaper for consumers. The European Union's competition authority, led by Joaquín Almunia, has called for 28 national telecoms regulators to be replaced by a single pan-European watchdog in what the Financial Times described  earlier this month as a sharp rebuke to a set of laudable yet unambitious proposals from Neelie Kroes, the bloc's telecoms chief and digital commissioner. (The European Commission has played down the reports about friction between its commissioners.) But such policy edicts do not necessarily transform the markets for delivery of products and services from being national to pan-European. European commissioners would obviously like to make markets less nationally fragmented, but this is not the most significant or fixable structural problem.

Some markets are inherently national

There are many impediments to pan-European telecoms and rather fewer realisable benefits than might be hoped for or expected with more centralized regulation. Operator services markets are inherently constrained by national borders (e.g., including language differences, overall consumption patterns including movement of customers and labour).  Technical standards, and price controls on international roaming are no longer nationally driven anyway. Radio spectrum band structures and allocations are well harmonized among European nations, even though frequencies are not licensed contiguously across borders.

The United States had a history of very fragmented spectrum allocations until some of the most recent auctions. For example, licensing was on a predominantly local "market-by-market" basis for cellular (850 MHz) and PCS (1900 MHz) frequencies--albeit with auctions organised centrally by the FCC, the U.S. telecoms regulator. However, it was the more integrated nature of the American marketplace overall--including language, culture (e.g., predominantly national sports), advertising, commerce and travel pattern factor--which prompted the subsequent national consolidation in spectrum ownership and operators.

Similarly, retailers for other consumer products and services are predominantly national. Just a few majors among countless examples include Tesco (UK supermarkets), Printemps (French department stores) and REWE (German supermarkets). Cross-border forays are in the minority, are seldom very successful and tend to be run along separate lines or with different brands. For example, Tesco and Marks & Spencer, the UK food and clothing chain, have generally failed in their attempts to expand internationally.  Network infrastructure and associated businesses for roads, rail and utilities are even more nationally-oriented.

Many global market products employed or sold by mobile operators are virtually identical across nations (e.g., RAN transceivers from Ericsson or Huawei and mobile phones from Apple or Samsung Electronics)--as are many products and services sold by other kinds of retailers--but the distribution, advertising and promotion of network services and the latter to consumers remain distinctly national.

To the extent that it is possible or worthwhile, mobile operators are already far more regionalised or globalised than most other consumer products and services companies. Vodafone, Telefónica, T-Mobile, Orange, TeliaSonera and others are all present in multiple European nations. They have achieved various cross-border efficiencies including joint procurement in network equipment and handsets, in finance with access to capital markets and tax arbitrage, and through certain international sponsorships and advertising (e.g., Vodafone in Cricket and Formula 1; but even that is being withdrawn in favour of more nationally-focused initiatives).

National consolidation

As I explained here last month, most economic benefits that come from operator consolidation will be achieved within markets (including at the local and national levels) rather than in expanding scale internationally. That is where the serious money saving is: with increased efficiencies though combining spectrum holdings, RAN and backhaul networks, back offices, retail distribution, brands and national advertising.  Perversely, the national network sharing--strongly favoured over full-blown mergers by national and European regulators alike--may actually make pan-European consolidation more difficult.  Network infrastructure and operations cannot be made most efficient on a pan-European basis when operators forge different network sharing partnerships on a piecemeal basis, nation-by-nation.  Unravelling the latter would be costly. This complexity is inevitable with so many parent companies, nations and operators in Europe.

Pan-European integration has political appeal--particularly to those in Brussels--but it is a pipedream and a distraction from the pressing need for rationalisation at the national level. Only full-blown acquisitions and mergers can ensure the owner commitment and extent of rationalisation required. With more of this at the national level, operators will bolster their strengthened market positions with ongoing investments in the nations where they can make the best returns, while cutting their losses and withdrawing from other nations. And consumers will also benefit from this with better networks and services.

Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. WiseHarbor publishes an Extended Mobile Broadband Forecast. This includes network equipment, devices and carrier services to 2025. Further details are available at: Find WiseHarbor on Twitter @WiseHarbor.