Tuesday, September 8, 2009

T-mobile/Orange merger indicative of the mess that is mobile

After months of speculation about T-mobile UK's future, a merger deal with Orange was announced today. Pending regulatory approval, the two carriers should start merging their operations within the next few months. Executives from both companies are trumpeting the increased efficiency that the merger will bring to their customers. The two companies can now shut down many of their overlapping antennae, customer service centres, retail shops and offer their customers better service at lower cost. It makes sense if you think about it. Instead of running two networks with mediocre service, they can run one smaller network with excellent service.

If you accept that merging the two networks will bring increased efficiency, then it follows that the current set-up - two separate networks and operations serving two separate sets of users - is inherently inefficient. If you accept that, the question that immediately presents itself is, if merging these networks will bring increased efficiency and lower costs for everyone, why stop? If reducing the number of networks from five to four will increase efficiency, why not go further?

At some point, of course, the anti-competition watchdogs will start barking because of their very simplistic view of competition, the belief that if you just make sure companies don't own too much of a market, any market, everything will be fine. You need to take a step back and look at the big picture to realise how fundamentally flawed the whole system is.

The inefficiencies are real. Here I am, in the middle of the City of London, and a simple glance at Ofcom's Sitefinder tool shows that I am in range of about ten different mobile phone masts, yet the reception I'm getting is rather poor. If I pop outside and hop on a train from Liverpool Street station, I will immediately be out of range while in the tunnels, and even once above ground in the open countryside I'll mostly be getting poor reception, and not a hint of 3G. And yet, if I pop my Greek SIM card into my phone and walk around, suddenly the picture changes. Five bars everywhere, 3G coverage throughout. What happened? Well, with my foreign SIM card I'm suddenly free to roam on all five networks. Suddenly it's obvious that we have a ton of masts around, more than enough to cover everyone, except that we insist that each phone use only one of the networks. All this time, money and effort expended to build five times the infrastructure (and then expended again to upgrade it to 3G, and soon to be expended again to move to LTE) and we insist on making each phone use only a fifth of it. What's more, the existing carriers are currently busy upgrading this infrastructure when they should be concentrating on expanding coverage to areas were there is none - rural towns, the countryside, underground, public transport.

The carriers are not to blame for this situation; unable to take advantage of existing infrastructure, they each have to build their own, separate networks in the primary areas before they expand into the fringes. To understand why this is the case, it's important to realise that the market for mobile communications is one defined and created by the state. In order to offer mobile phone service, you need to own a license to transmit radio waves at specific frequencies. These licenses are given out by the government, but you can't just apply for one; there's a specific number, they are perpetual, and they have all already been auctioned off for billions of pounds to the carriers we all know and hate.

The government is squarely to blame for this mess. It has created five different networks, each with an identical mission to create infrastructure, yet unable to share resources for fear of being punished for anti-competitive behaviour. The situation, frankly, is quite ridiculous. We have a government-mandated, perpetual oligopoly, all in the name of the free market and competition.

So, what's the solution? Actually, I've already mentioned it: Roaming. Domestic roaming. Every mobile phone should be allowed to connect to any carrier's network in its home country just as it does when it finds itself abroad. Only then will the competitive forces of the market truly work their magic. First of all, this will allow small start-ups to serve the low-margin areas that the incumbents refuse to go near, where coverage is lacking. It will make it possible for companies to build masts in rural areas, on the London Underground, on overland trains, make a modest profit from the roaming revenues while the big boys keep their existing, lucrative inner-city infrastructure. Now you can have real, proper competition; if a company starts charging exorbitant rates for using their masts, a competitor can just stick up another mast and drive the price down towards the cost. Suddenly all the money being spent upgrading the existing infrastructure - which is more than sufficient to provide everyone with perfect coverage in heavily populated areas - will be shifted to expanding the infrastructure to where it's needed the most, and a vibrant market of enterprising companies serving niches in the market will thrive.

Please, let's stop this madness. Write to your MP. Write to Ofcom. Let's stop building five times too much infrastructure in major cities while letting the countryside languish in obscurity. Let's make it possible for enterprising people to get us coverage on the tube, on the train and anywhere else where it's needed. Let's make mobile sane.

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