What Creates Competition in Telecom Market

Telecom operators, regulators and competition authorities need to update their knowledge of what creates competition in the market, according to Strand Consult’s report. Consolidation in the telecom market is heating up around the world, particularly in Europe. Historically, when evaluating mergers, regulators would review the number of competitors and the market share of proposed entities.

This approach may have been appropriate when an operator had a single network offering a single service, such as telephony or linear television. However today’s world is different. Networks deliver competing services.

Authorities may also require "remedies" as conditions for merger approval. The notion is that the authority needs to somehow correct an imbalance or inequality created by the merger. However remedies in themselves can create new and unintended imbalances and inequalities. Therefore it is time for operators, regulators and competition authorities to update their knowledge on what creates competition in the telecom market.

This research note describes the four factors which increasingly contribute to competition in the telecommunications market and why these factors should be included in the assessment of the consolidation and the design of remedies. The four factors are (1) competition from over the top (OTT) providers, (2) network technology evolution, (3) whether the parties are single play vs. full service providers, and (4) future regulation.

1. Competition from over the top (OTT) providers

OTT providers compete with operators across a range of communication and content services. Users can easily complement, if not substitute, OTT services for traditional telephony and video services. For example Skype can be used for long distance; Facebook/Whats App for messaging, and YouTube and Netflix for video. One advantage for OTT providers vs. network providers is that they can offer their services without making investments in the underlying network on which their service is delivered.

2. The evolution of network technology

Operators have invested significantly to upgrade their networks to deliver a range of new services. In the old days, cable TV providers only used their platform to deliver linear TV. Today they can offer broadband, telephony and video on demand. The network platform and the the customer base are evolving and expanding the operator’s business and competition.

3. Single Play vs. Full Service Providers

There is a big difference in being a quatro play operator vs. a single play mobile operator. Operators differentiate in the kinds of products they offer, an important factor that needs to be considered in merger analysis. For example a single play mobile operator only offers mobile products whereas a fixed lined operator can offer broadband, TV, telephony, and wireless. Being a one-stop shop for consumers is a different business model than being a pure play.

4. Changing Regulation in Investment Time Horizon

Regulation of the telecommunications industry is not static. Operators which buy a license and build a network frequently find that they undertake an investment at one point in time only to find the authorities “change horses in midstream“ or “change the rules of the game“ down the road. In practice this makes it very difficult for operators to plan in advance for network investment—and makes shareholders more risk averse. As operators see the specter of a range of politically-motivated regulation, whether wholesale pricing or net neutrality—they may find their business case reduced.