Today’s post is by Rudolf van der Berg of the OECD Science, Technology and Innovation Directorate
A new OECD report Wireless Market Structures and Network Sharing evaluates what happens when players enter or exit the mobile market. It finds that more than three Mobile Network Operators (MNOs) is often the source of innovative offers that challenge existing market wisdom and practices, and a driver for the entire market to become more competitive. If the current number of MNOs is not sustainable or new facilities-based entry is unlikely, it is worth considering voluntary network sharing agreements – either as an alternative to a merger or to allow a new player to enter a market. If Mobile Virtual Network Operators (MVNOs) are to provide meaningful choices for consumers as well as an additional constraint on potential anti-competitive conduct, they need to be able to operate technically and commercially independently from MNOs if they wish. Even then, without sufficient wholesale competition, it is unlikely they will be able to substitute for the role played by a “challenger MNO”. In addition if countries allow the emergence of Private Virtual Network Operators, which is an advanced version of the so-called “Apple SIM” (a SIM card not specific to one telecoms operator but to a car manufacturer, energy company or government agency) then more competition in the Machine to Machine (M2M) market is likely.
Mergers between MNOs are not that common but can have substantial implications for competition. In 2013-2014, three high profile acquisitions were under consideration: in Germany between Telefonica and e-Plus (KPN); while in Ireland, Telefonica proposed to sell its subsidiary O2 Ireland, to Hutchison 3-UK. In both cases the merged entity committed to setting capacity aside for MVNOs and new entrants. In August 2014, a possible merger between T-Mobile and Sprint in the United States was abandoned, reportedly because the players did not think they would receive regulatory approval. This appears to indicate that regulators are not convinced that a reduction from four to three operators is good for the functioning of the market. With some operators now proposing to help to establish a new fourth operator as part of the commitments to allow for a merger, the rationale behind allowing mergers from four to three operators may be reduced.
In countries with four or more mobile operators benefits to consumers are visible through more competitive, more inclusive, and more understandable offers. A reduction in prices or an increase in the content of the offer can be seen in Austria, France and Israel under four-MNO markets. Unlimited offers did not really exist in France and Israel before the arrival of new entrants and those offers that approached unlimited were expensive.
International mobile roaming is another area where challenger brands are changing markets. At the time of the OECD Recommendation on International Mobile Roaming, in February 2012, no mobile operator in any OECD country included this service as an integral part of their offer. Since 2013, a growing number of offers from MNOs that include international mobile roaming as an integral part of their bundles have been made in countries with four or more operators. Such offers have largely not yet emerged in countries with three operators.
Some financial analysts, telecommunication consultants and mobile operators have contended that a reduction in industry revenues could lead to lower investment. Other analysts state: “Consolidation is an option but there are others too: network sharing is less risky and brings large savings as well.” Across the OECD, investment in public telecommunications networks in fixed and mobile networks, excluding spectrum fees, remained rather stable between 1997 and 2011. The direct implications for investment resulting from the number of MNOs are even more challenging to ascertain. Where data are available they should be carefully assessed but generally describe a positive outcome. For example, in France the introduction of a fourth MNO has brought forward 4G investments.
Network sharing could be considered as an alternative to the concentration that would result from full mergers. The potential savings from network sharing may represent a significant proportion of the savings that are used to justify a full merger. Where there is significant competition among MNOs and new facilities entry is unlikely, the benefits of these savings are more likely to be passed on to consumers. However, regulators will need to remain vigilant because under some conditions network sharing agreements may lead to a decrease in competition similar to that experienced with a merger.
MVNOs have focussed predominantly on markets underserved by MNOs. In a few countries, where the model had not been embraced, MVNOs were instrumental in promoting pre-paid mobile telephony. A further example is MVNOs that offer services to a certain diaspora or provide service support in specific languages. Mobile roaming has also been an area in which MVNOs have entered the market, though there are limitations because they may not be able to directly negotiate roaming contracts with MNOs. If policy makers want MVNOs to play a significant role in boosting competitiveness it is important that they can choose to be full MVNOs. Only half of OECD countries currently have full-MVNOs.
An important development in this area has been the first moves towards liberalisation of access for private virtual network operators, particularly for use with M2M. This means private companies (vehicle manufacturers, energy networks, governments) have access to the IMSI-numbers necessary for SIM-cards. In March 2014, the Netherlands was the first country that enabled this form of roaming, by allowing private networks access to the necessary IMSI-number ranges. Already one Dutch energy company, Enexis, has registered as a private virtual network operator. In addition, Germany has started a consultation on whether it should allow MVNOs and M2M-users access to IMSI-numbers, in line with the initiative taken in the Netherlands.
Today, the OECD is also publishing a report on the economics of IPv6. The report examines what economic theory can teach us about the reasons why the adoption of this latest Internet protocol is taking longer than was thought at its introduction.