Firstly, the intention to create a JV must now go to the CMA. It will be assessed on how it will tip the market, whether it’s good for business and consumer, and how it will use its combined budget to invest in one 5G infrastructure for coverage that consumers and businesses need. support the UK’s 5G strategy.
So, what next? Time will tell if the CMA approves it, but when you consider the UK is a mature market, that is capable of self-righting itself when it comes to managing competition and price, not least because of the very healthy MVNO landscape, I can’t see a reason not to.
Personally, I would be surprised if it isn’t approved. Ofcom has already signalled some consolidation would be supported and shareholders certainly reacted well to the news when rumours a deal would be announced emerged.
There is concern about dominance. True, it will create a £15bn company. However, in terms of percentage share, it will keep a reasonable balance between the three incumbents – all sit in the 30’s.
In Ireland, new MVNOs were part of the strategy to keep the market competitive when Three and O2 merged. But wholesale is already a big driver for growth in the UK market so that form of intervention shouldn’t be necessary. The emphasis that competing operators put on wholesale won’t stop, in fact it could ramp up because of this deal.
If they get the green light, the two parties will have the hefty task of integrating the brands. It’s a project that will merge everything from networks and infrastructure, people, and processes. And all of it must be done to deliver on the shareholder expectation of greater ‘synergies’ and cost efficiencies and improved service and propositions for consumers.
There will also be brands to blend. Could they go down the same path as Orange and TMobile and rename entirely, or will they meld the names as Virgin and O2 did? It’s hard to call. In Italy Wind and Three became Wind Tre. And what of the sub-brands? There will be some busy people looking at the portfolios.
At a network level, cell sites will need to be reviewed and a more unified technology approach will be imperative. It’s inevitable this will include some meaty and complex commercial discussions around site sharing, given Three is part of site sharing group MBNL and Vodafone is part of Cornerstone.
I suggest we dial this point up and highlight that the new entity will have 2 budgets to invest in one UK infrastructure, driving coverage and 5G not just for consumers but in B2B and IoT too
The big question to resolve will related to whether the other operators involved in the shares will allow the new entity to access both schemes without compromising competitive advantage.
Protecting continuity of service. The last thing either party will want to lose during the integration phase is customers. But these types of big integrations rarely run smoothly, especially when network footprints are involved. There are different vendors, technologies, strategies and corporate values and approaches to align.
Then there’s the more practical customer end of things. There is no doubt that they will need to rationalise tariffs. Preoccupation with settling that and agreeing how care is delivered will have a knock on to customer service delivery. It could feel quite painful for a time.
Talent up for grabs. While two heads may be better than one, in the case of a merger the opposite is true. Duplicated effort will need to be addressed, so expect lots of talented people looking for new roles. Plenty of parallel industries driving IoT / 5G applications to snap them up – it could be good for the major private network infrastructure projects at ports to support more efficient and buoyant international supply chains.
Opens the door for competitors. Change is a gift for opportunist and well-prepared competitors who can target customers in a period of change and potentially grow their customer share to the detriment of the new entity. Smart operators should already have plans in place to address this and they’ll be looking for people with the know-how to deliver it.
MVNOs could win more than anyone. Savvy MVNOs will be doing two things – looking at the tariff line up and working out where they can steal customers (business and consumer), and they will be circling for the talent.
But it won’t necessarily be plain sailing. I’d be encouraging all MVNOs to engage with their partner, especially those with Vodafone and Three, to understand the potential impact and change this could bring to the market. Anticipating the need to renegotiate terms, identifying retention plans, through to considering the risk / impact / opportunity of outages are all things to have on the to do list.
Opportunity for vendors. It’s also a challenge for vendors selling into the merged entity. There will undoubtedly be a rationalisation of vendors – each operator has several billing systems, different approaches to customer care and preferred suppliers for network equipment. Over time, the preferred supplier list will be streamlined by procurement teams as they leverage increased scale and reduce costs.
But even the winners of this procurement scrap may find they miss out. Simple maths tells you that if they supplied to both operators individually, then the sum of the parts is likely to be smaller than the value they achieved from the separate organisations.
Value for consumers. In the current financial climate, consolidating operators needs to happen. My bet is that it will be a strong argument to the CMA / OFCOM to support the merger. It’s no secret that in a market with stagnant ARPU (barring inflationary rises) and year on year growth of data usage, smaller operators won’t be able to sustain the level of investment required to deliver quality of network service. Plus, I think that the significant savings on the associated costs of 5G will have been used to demonstrate the value the merger will deliver to consumers.
However, it’s possible consumers might not win as much as planned when it comes to tariffs. I’d expect to see some of the richest and best value tariffs (probably on Three) being retired. Consumers, already hit with extraordinary inflationary price rises, will be forced to shop around, especially if the most aggressive all you can eat tariffs are withdrawn. MVNOs and other networks could and should take advantage of the appetite for a better deal.
You can see it’s not a clear-cut win-win for consumers, employees, competitors, and vendors. It’s a big change in the UK telecoms market, that will take time to deliver and as the integration progresses so the market dynamics will alter. All players in the ecosystem (including consultants like me) need to consider the impact on their business and build a plan to exploit the opportunities and mitigate the risks.
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