Research from the Oxford Martin Programme on Technological and Economic Change explores whether mergers in the mobile network industry benefit consumers, or if a new business trend in the sector might be a better approach.

The UK Competition and Market’s Authority (CMA) is currently considering the potential merger of Vodafone and Three, which would create Britain’s biggest mobile phone operator with around 27 million customers. The firms argue that the merger would accelerate the transition to a more powerful and faster 5G network, benefitting customers and businesses.

However, as Professor Ian Goldin, co-Director of the Oxford Martin Programme on Technological and Economic Change, highlights:

‘Investing in new fifth generation (5G) communication networks will bring reliably ultra-fast broadband and mobile connections. This means that consumers can experience higher quality video and other content in real-time and businesses can operate with large data and distributed systems seamlessly on cloud and other services.

‘The question of whether a merger of two of the big UK operators will be good for this transition is of great significance in the UK and beyond.’

Mobile operators across the world are faced with a constantly increasing demand for faster connections and more data while keeping their prices under control. In the UK, the demand for mobile data has increased by 63 percent in the past two years, according to national watchdog Ofcom.

So, is there a way to boost 5G investment and keep prices low?

A relatively new trend in the mobile industry involves the creation of separate companies (Tower Companies or TowerCos) that acquire thousands of existing mobile towers from mobile operators with the aim of leasing them back to the operators. This way the same tower previously used only by one ‘tenant’ can now be used by several, reducing the need for network duplication and improving efficiencies.

The advantages of this separation between the network and service layers in the mobile market might be greater than expected, according to research from the Oxford Martin Programme on Technological and Economic Change, published in an IEEE Communications article.

The introduction of tower companies along with other forms of sharing or mobile operators’ cross-border consolidation are the areas where operators can look to achieve more efficient outcomes.

As co-author Konstantinos Masselos, also Professor in the Department of Informatics and Telecommunications of the University of Peloponnese and Vice President of the Body of European Regulators for Electronic Communications, explains:

‘The deployment of telecommunication networks is capital intensive. Infrastructure sharing and the model of passive infrastructure companies like Tower Companies and Fibre Companies are useful tools for addressing both investment challenges and competition as opposed to mergers that might negatively affect competition.’

The researchers examined the financial outcomes for operators that entered into tower companies agreements in European markets over the period 2000 to 2019 and compared them with the effects of mergers that took place over the same period as another way for operators to save costs.

Their key findings included:

• Operators that entered into tower company deals reduced their average revenue per user by 1.41 to 1.79 euros – these savings are typically passed onto the consumer. Operators that entered into mergers did not report any such savings.
• The reduction in prices for operators in networks sharing deals was a direct result of capital expenditures savings (investments made in long-term assets) that accrued to 31 million euros per quarter.
• A measure of the merged operators’ profits (EBITDA) significantly increased by 8.6 percent post merger, while the market became more concentrated compared to those without mergers. Operators entering network sharing did not report higher profits.

Discussing the regulatory and policy implications further, co-Director of the Technological and Economic Change programme and article co-author Dr Pantelis Koutroumpis said:

‘In mobile networks, mergers that do not go through the necessary checks and balances do not benefit consumers in national markets. The introduction of tower companies along with other forms of sharing or mobile operators’ cross-border consolidation are the areas where operators can look to achieve more efficient outcomes.’

The authors say that the traditional model of mobile operators owning and developing their network infrastructure is likely to be the exception rather than the norm in the future, with implications for market development, technological opportunities and network expansion.

While network sharing is a potentially useful policy tool for cost-efficient network deployment and operation, there are still regulatory and market issues that need to be considered and such trade-offs should be evaluated on a case-by-case basis before any final decisions are made, they added.