DUBLIN, Ireland-The news that Mannesmann has conceded defeat in its battle with Vodafone AirTouch merely underlines the momentum behind consolidation in the European mobile communications industry. However, few observers appear concerned at the concentration of market power in the hands of a relatively small number of operators.
A study published recently by Strategy Analytics’ European mobile communications service shows that while average mobile-phone charges fell by between 15 percent and 25 percent in Western Europe last year, prices barely moved in the duopoly markets of Ireland and Norway.
The greatest price reductions came in the Netherlands, where there are now five cellular operators, even though the population of that country is not much greater than that of Norway and barely twice that of Ireland. There also was little price movement in Sweden, where there has not been a new cellular operator added for eight years.
The study also found that simply increasing the number of operators is not enough to increase competition, unless new entrants also are given regulatory support. For example, the introduction of new carrier Telia to the Finnish market in 1998 barely impacted call costs as the incumbent operators Sonera and Radiolinja were able to ignore the lower prices introduced by their new rival.
This was possible because Telia spent more than a year trying to secure national roaming agreements with the incumbents and was only able to offer a nationwide service from December 1999 after the industry regulator supported Telia’s case.
Regulators and governments in other parts of Europe are coming under pressure to take similar action in support of new market entrants. A source close to the third mobile operator consortium in the Czech Republic suggested there was “clear evidence of collusion” between the existing operators to deny the new consortium national roaming agreements.
However, industry analysts believe the regulatory frameworks in each country are sufficiently strong to prevent consolidation from leading to a reduction in the number of operators. According to Eddie Murphy, a mobile industry expert with U.K. consultancy Analysys, consolidation should be good news for the consumer.
“We are moving toward a situation where a number of `super operators’ will dominate the European mobile communications industry, but this should benefit the consumer in several ways,” commented Murphy.
“Firstly, the economies of scale available to large-scale companies will reduce operating costs, and these reductions can be passed on in the form of lower call charges. Secondly, owning networks in a number of countries gives an operator the option of reducing its roaming charges, one of the largest cost factors for business subscribers in particular.”
Operators partly justify high roaming charges by pointing to the extra costs levied when their customers use a different network and the fees charged by the clearinghouses that calculate the value of calls to and from different networks. If a single operator controlled networks in all the major European countries-as Vodafone AirTouch/Mannesmann will-these additional costs could be eliminated.
Despite the acceleration in industry consolidation, Murphy believes there is no danger of a reduction in the number of operators in each country.
“Governments issue licenses on the basis of increasing competition-each license must equal a new market entrant,” Murphy said.
In countries where there is overlap, one of the competing operators has to be divested, such as in the United Kingdom, where Mannesmann must sell Orange when its deal with Vodafone AirTouch is ratified.
Phil Kendall, a senior industry analyst with Strategy Analytics’ wireless services division, also is convinced consolidation will not reduce customer choice.
“Each market has its own regulatory framework and operators will not be allowed to control more than one network in any country in order to maintain competitiveness,” said Kendall.
