Brit competition regulator will make or break Vodafone and Three union Britain's Competition and Markets Authority is asking the mobile industry for feedback on Vodafone's local merger with Three to determine if the agreement could negatively impact rivals, customers, or both. The tie-up was confirmed in June, when the duo pledged to pour £11 billion ($13.9 billion) into the country's 5G …
There was an ElReg article recently on Vodafone with market analysts rating Vodafone stock as “stagnant” because it was operating in a regulated and competitive market and so there was not much room to fleece customers and produce the ever increasing profits they say investors are wanting. Another effect of this was to increase the costs of borrowing needed for a rapid rollout of 5G.
It would seem “investors” have forgotten what utility stocks are for; they are dull and don’t give high rates of return but they give a steady income.
Canning Tok, co-managing director at Three parent CK Hutchison, admitted: "Three UK and Vodafone UK currently lack the necessary scale on their own to earn their cost of capital." The combined entity would be better placed to build a "best-in-class 5G network," he said.
I suspect this is Three putting itself up for sale as it can't afford to invest in 5G. Vodafone and VMBO2 alread share a lot of infrastructure in the UK - so saving costs there.
If this merger does go ahead, the UK will, in effect, end up with just two mobile networks: EE & VMBO2/Vodafone/3
I don't know about Three's 5G performance but my own personal experience of them a few years ago was that although I could stand on a street corner in the centre of town and get five 4G bars of reception on my handset, as soon as I went more than two feet inside any building these always disappeared completely. I could be sat right next to the window at the front of a pub or restaurant and have absolutely zero phone of internet connectivity, and this was consistent wherever I went.
I've never had that issue once since moving to Vodafone. However, YMMV.
I believe MBNL isn't a common network, it's a capability sharing arrangement that's worked out on a site by site basis. EE can have MBNL build a new site where 3 aren't willing to invest, in that case EE get more coverage but 3 won't have access. The same can apply in reverse, eg if 3 wanted to upgrade an MBNL site to 5G where EE aren't interested.
Much as I despise Openreach, I do wonder why it is an appropriate and necessary economic model to have gas, electric and water to be operated as closely-regulated monopoly networks, then it should not also be for mobile telecoms? Would very much like for there to be a grown-up national debate on this led by experts who understand these things. I guess our current political overlords are too busy making scapegoats out of brown people in boats to worry about such an important driver of productivity.
Water is worse as it's a set of regional monopolies which control all aspects of it (reservoirs, sewerage, all pipeworks, supply to premises, etc). Gas and Electricity at least have some separation as the infrastructure is managed by regional monopolies but the supply to customers by a number of companies.
WIth Openreach it's a national monopoly controlling the infrastructure (except Hull) which is part of the same group which offers services over the infrastructure alongide other suppliers.
None of these models seem to work very well - probbaly because there is a tendency ro prioritise shareholder dividends over renewals and maintenance.
If you don't offer dividends to shareholders, they won't invest in the shares. It's little different to borrowing from a bank, tell a bank that you want a loan but will only pay 2% interest, and see how many of them offer to lend you money.
Personally I prefer to see profits shared among investors, rather than handed to bankers.
Shareholders invest only once when shares are issued.
Lots of companies don't pay dividends and shareholders are happy to go along with this if they think the share price will go up. They also tend to approve of the actions of the boards that are detrimental to the company, such as leveraged buyouts that many telcos have been involved in. Only fair that they should also pay the price for the consequences and stop rubber-stamping board decisions so often.
Vertical monopolies are the primary issue. They're too easy to abuse.
The distribution networks (power, gas, telecoms, etc) should be prohibited from operating or investing in retail operations (whilst safeguards must be in place to prevent ANY entity from acquiring influencing/controlling interests in the wholesale networks)
I'd quibble at the term "closely-regulated". Can't remember many of the regulators really doing much since privatisation. It's usually been pretty light touch: "let us know whey you're doing something you shouldn't".
To your main point: the utilities are generally required to provide common access so that the road doesn't need digging up when the service provider changes. This obviously doesn't apply to mobile networks which initially used network coverage as a competitive advantage. However, for a while now many mast sites are shared to reduce costs and, indeed, some of them no longer own the network or mast sites. This means there is little to be gained from additional consolidation or things like roaming where one network has coverage and another doesn't.
Three, that's the number, providers isn't enough to provide competition, but two would just be a prelude to price hikes. Rather than getting the customers to bail out the greedy shareholders, it would be better for the networks to find ways to reduce their debts such as forcing creditors to swap debt for equity Or shareholders to accept the writedowns they've been avoiding for years.
"I'd quibble at the term "closely-regulated". Can't remember many of the regulators really doing much since privatisation. It's usually been pretty light touch: "let us know whey you're doing something you shouldn't"."
Quite. The regulators for all the utilities are pretty much useless - a few fines which cost less than doing things properly aren't going to change things. E.g. if water companies were fined heavily enough, they wouldn't continue to dump raw sewage where they shouldn't.
Infrastructure should be nationalised.
It should be paid for by selling its services to consumers via privatised companies.
This way, we get the blanket, funded expansion of standardised services without companies rolling their own proprietary nonsense, interfering with each other, or one "gaining" frequency rights that the others cannot.
And you and I deal with any company we want to, with all of them having the same national coverage, but competing on price, service, support and deals.
Same for all industries - water network should be nationalised, water supply privatised (it would be nice to be able to CHOOSE WHAT WATER COMPANY I WANT TO USE, which currently isn't possible!). National Rail, private rail trains and services. National Grid, private electrical firms. "British Gas", and private energy firms. "British Telecom" and private firms overlaying their individual offerings over the national network.
All-nationalised is terrible.
All-privatised is terrible.
And switching the roles (privatising the network / infrastructure) is terrible.
Nationalise the infrastructure, privatise the resellers and services laid over it to offer to the public.
"Nationalise the infrastructure, privatise the resellers and services laid over it to offer to the public."
That's been a disaster in rail, and would be in other industries. In many ways its close to the energy market model, and that's been a disaster too.
I must say, having donkey's years of experience on the inside of water and energy companies, that the stuff prattled about the virtues of either nationalisation or private ownership, or the role of regulators, the interface between regulators and democratically elected politicians still amazes me. I suppose it's the sort of debate you'd get on technology in a utility industry forum.
Let's say you could choose your water supplier. All that happens then is that your "supplier" sends you a bill like your current one does. It's unlikely they'll have water of the right quality, volume and reliability in the right place to actually send you physically different water, but that's of itself not a blocker, the new supplier buys and sell on the water wholesale market that already exists for business users. If Thames Water lose your custom, they've then got surplus resources, they'll probaby sell that into the wholesale market. Thames Water continue to operate the system, you get water of the same quality and from the same source as always, all that's happened is there's a new and expensive overhead of a wholesale market and a balancing and settlement system to make sure that water sold is paid for by the correct suppliers. So what changes? Well, costs have gone up. Commercial and operating risks have gone up (by virtue of more parties involved). But you might get a different experience when you phone up to query your bill. Is that the plan?
A relevant technical note is that whilst in theory a new supplier has to source the water it sells, in practice that's an illusion - there's no cheap, good quality, high volume, unexploited water resources in any practicable place to serve (say) south west London, or indeed many parts of the country. Contrary to public opinion mains water isn't a fungible commodity - different resources can't always be mixed (eg borehole waters and upland surface waters), some are very seasonal, etc etc. It's bulky, has low value density, and asset-expensive to transport, distribution systems don't carry much surplus capacity and aren't universally linked, so you can't simply put water in where it suits you, and magically take it out somewhere else.
And at the root of these various conundrums is that in the value chain for water (or gas, electricity) the supply function is only about 5-15% of the total value. It's probably similar in telecoms. All the rest of the cost is non-competitive, or competitive in ways that wouldn't convince a sceptical observer, and which the end customer has no influence upon. Often government come up with crap-headed ideas to promote competition, as in energy and telecoms. This becomes a policy goal - not cheaper, not more reliable, not better quality, the aim is to increase switching rates (and thus industry costs). Government then tilt the playing field, by allowing new entrants to dodge USOs or industry levies or rules, to take more risks to offer a cheaper product, even though at an industry level costs go up. That's why your leccy standing charge is through the roof - because it's paying the billions incurred through the failure of new entrant energy suppliers with unsustainable business models.
Of all the models across infrastructure, the best one was OFWAT's comparative competitiion + standards of service model (before it was ruined by allowing business to choose suppliers). Regional monopolies can be efficient, pressure can be applied on the inefficient ones, innovation rewarded, standards of service can be enforced. This does not give consumers any choice, but competition doesn't actually drive better performance - look at the performance of energy suppliers, or the dismal standards of customer service from large telcos. Politicians who set the rules simply don't understand or don't care that the theory of competition is not applicable in the real world, largely because information is imperfect, and the power of marketing and of brands is far greater than economic theory allows for. I'm sure many of you will be spluttering into your capuccinos in outrage, about sewage discharges to the sea, the profits and tax dodging of certain financial services owned water companies. Well both are failures of regulation, but that doesn't mean regulation can't address that. Part of the problem is that most regulators are "arms length bodies", meaning that they aren't close to policy makers of ministers, so as a problem builds they can only apply the existing rules - they don't make the rules.
In my view, there's no net benefits from competition in energy, that should be brought back to integrated regional supply and distribution models, privately owned but regulated. Landline telecoms would be better that way, but the growth of multiple competing infrastructures means that's now too expensive to roll back - but you might need for example a USO levy on new entrants. For water keep things mostly as they are. In terms of regulators, government should bring all regulators back into government departments, to be accountable to ministers, and to bring together policy and regulation, so that problems can be anticipated and dealt with, for example changing the rules "in flight" for unanticipated problems, rather than letting problems occur and build. Penalties from regulators need to be applied quickly, and in a way that ensure non-compliance is significantly more costly than compliance. And regulators need to be transparent about the costs they impose on companies, and the tradeoffs the regulator makes - for example, completely resolving raw sewage discharges is conceptually easy, but wildly expensive, and that cost would go onto bills, which is why it isn't done. Likewise, the cost of decarbonising the energy system is around about half of your total bill, but it is funded in ways that are totally non-transparent to intentionally hide the costs, because politicians signed you up for this, but didn't want to 'fess up how much it would cost.
How likely is any of that? Not at all. Politicians like the current system, because they can blame regulators or private companies for things that have gone wrong or are unpopular even when many of those things are directly driven by government policies.
I don't think you addressed it directly: there is also the issue of regulatory capture, which can be what has happened when people complain about supine regulators.
Whilst I believe in the power of regulated markets, it only works when the regulator is independent* and has sufficient (possibly statutory) power to influence market participants' behaviour. The mere existence of a so-called regulator is not sufficient.
*Actually, where consumers are involved, the regulator should be biased in favour of consumers. In most cases, individual consumers have considerably fewer resources to take up cudgels against badly-behaved suppliers than suppliers have resources to deny, delay, litigate and generally cause problems. To paraphrase a well known saying: in a fight between the individual and the system, back the system. A good regulator redresses the balance somewhat.
"where consumers are involved, the regulator should be biased in favour of consumers. In most cases, individual consumers have considerably fewer resources to take up cudgels against badly-behaved suppliers than suppliers have resources to deny, delay, litigate and generally cause problems. "
Most regulators (even the crap ones like Ofgem and Ofcom) have consumer codes of practice, and require suppliers to sign up to Alternative Dispute Resolution (ADR) schemes, such as Ombusman Services, CISAS etc. Those are free for consumers to use, with all costs passed through to suppliers (typically £00-500 per case). These schemes generally work very well and offer outcomes as good as the consumer would get in a fair and even court hearing. These do see some use, but many people with a genuine complaint threaten suppliers with the relevant ADR (or court) but don't follow through. Taking a complaint to ADR is procedual, bureaucratic and slow, but certainly less so than court. For very simple cases it's pretty easy, for more complex cases, then consumers need to build a case in the same way as if they were taking matters to court - what was done and said by both parties, evidence, timelines, outcomes and effect on the consumer, and often people decide it's too much effort, or in some cases they simply don't understand the process, the ADR scheme remits, nor what they have to do to build a case.
And there's always Citizens Advice for those who don't know where to turn.
When gas, water and electricity were all privatised, they were already considered critical infrastructure, probably hence being closely regulated from the start. It's only in recent years that mobile networks have been viewed the same, and long after the mobile industry was established. Perhaps the government are just taking a long time to catch up, or there is genuine reluctance to enforce that level of regulation onto an established sector.
"Perhaps the government are just taking a long time to catch up, or there is genuine reluctance to enforce that level of regulation onto an established sector."
Telecoms has been left to itself for a long time almost entirely because of the fast-rotating ministerial door at DCMS: In the last 13 years there's been 12 people who've held the title Secretary of State for Culture, Media and Sport. The short tenure of the ministers was made significantly worse by the appallingly low calibre of several of those ministers, as the list has included wasters like *unt, Hancock, and Dorries. At the beginning of this year policy and regulation moved from DCMS to DSIT, but I can't see that helping - being myself subject to the departmental changes at that time, I can assure you that such moves aren't just "on paper plus a new letter head", they're much like a hostile corporate takeover, with fights over jobs, the new bosses not understanding what they've taken on, incompatible IT, the usual protracted mess of changes ot locations, terms, and the new management deciding that a reorganisation would be a fabulous things to do etc.
In that enduringly unstable situation, the only things DCMS could do were things of so little interest and risk that they would have the interest and excitement value of a cheap Christmas cracker, or any loud throwaway promises by the PM, so a bit of a panic around BDUK and FTTP rollout, but little or no interest in improving the lives of the proletariat.
New Zealand analysed the BT model very carefully when evaluating how to break the stranglehold of a rapacious monopoly telco - and documented how BT uses it to maintain its vertical monopoly
That's WHY they forced the separation of the lines and dialtone parts of the business into wholly independent companies, with cleaved ownership
BT may now have Openreach as a "separate company" but by still owning the lines side they continue to hold an abusive monopoly
(In short: a natural monopoly is easily abused and needs very careful regulation. You can see the potential for things to go wrong with Centrica making out like bandits at wholesale level)
Presumably you're too old to remember what railways, telecoms, water, etc were like under state ownership? I'm not, and whilst there's LOTS still to criticise, the service is substantially better in almost all respects, and when things do go wrong the root cause is mostly down to government interference.
Dismal customer service.
But other networks have been the same.
So a fairly level playing field of uselessness, but a merger might at least increase chance of getting a signal for anyone on 3 or Voda as potentially increases masts available.
I'm sure the telcos operate as a de facto cartel as never seem to get any of them offering deals that are significantly better than the "competition", so the much vaunted competitive market never looks that way to me.
Main thing I want is better coverage (or telcos being forced to give you free roaming in UK when you cannot get a signal from "their" mast in a location)*
* Partner & I on different telcos (3 & O2) as both give OKish reception where we live, and increases chance one of us gets a signal to communicate with friends / relatives when we travel the UK, but even with that strategy quite often in signal free areas on the 2 providers. I'm half tempted to go with EE, even though they were dire when I used them in the past (.. just like all the others), as,with their masts added for emergency services network (though will Airwave ever die?), they do at least have reasonable coverage in the UK.
And the chances are THEY WILL CLOSE some of the masts (which are nearby to each other) under the guise of CONSOLIDATION and cost savings.
Greedy bar stewards all of them. Never invested in a timely manner but chose to squeeze every peny out of punters in a cartelised market.
Now they plead poverty , saying unable to invest in the future as a single entity.
"Customer services " is an alient terminology for them all, and the merer wil make it even more dire ( consolidation - again).
> And the chances are THEY WILL CLOSE some of the masts (which are nearby to each other) under the guise of CONSOLIDATION and cost savings.
You do realise there in the majority of cases these days there are only effectively 2 mast sites (rather than 4) in each area for the 4 Operators as several years ago Vodafone & O2 entered into a shared mast site partnership and likewise EE & 3 entered into a shared mast site partnership. so for example if you have devices with EE and 3 sims they're likely using the same mast.
Obviously if the Vodafone/3 merger goes ahead that will impact on/break-up these 2 site sharing arrangements.
Didn't both the EU (see https://ec.europa.eu/commission/presscorner/detail/pt/IP_16_1704 ) and the 'Destroyer of John Lewis' (then Ofcom Boss) Shazza White both veto the O2 & Three merger back in 2016 (See also https://www.theguardian.com/business/2016/feb/01/ofcom-chief-warns-on-o2-and-three-merger ).
In both cases it was because Three was in MBNL and O2 is in Cornerstone and they were worried that both O2 and Three merging would mean they had stakes in both core networks.
But how is this any different? Vodafone is the other party in Cornerstone. Three is still in MBNL. Isn't this the same issue?
Earlier this year, EE and 3 agreed to "refocus" MBNL so that it mainly did maintenance of existing dual sites, with each operator taking full control of future deployments. I'd imagine it's a simple enough job to pull the MBNL maintenance contract apart if that's a problem. Would cost Voda, but as they're desparate to do some more M&A they'd happily do that. Realistically they'd wait to see if the CMA are opposed, and then offer a split out of MBNL as one or more concessions in the hope of changing the CMA's mind.
There is a political backdrop here - the Tories have decided that regulation is stifling growth. Obviously it's got to be the fault of regulators (civil servants) because it couldn't possibly be crap-headed government policies going back decades, political turmoil, loss of confidence in government, idiot ministers, Brexit, high energy prices etc, so they're starting a big review of all regulators. And obstructing what some rich business wants is not on the Tory agenda. So if the CMA are thinking about their own interests, they'll be looking to approve this with concessions.
The Register 
Biting the hand that feeds IT
Copyright. All rights reserved © 1998–2024
