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Essay: Analysis of the market structure of the UK’s telephony network

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INTRODUCTION

In 1985, mobile phones were launched in the United Kingdom (UK). At the time, Vodafone and Cellnet were the first mobile phone network providers and the mobile phones used analogue technology. It took the introduction of the ‘second generation’ that used digital technology based on the new ‘Groupe Special Mobile’ (GSM) standards for mobile phones to come into full blossom. The first GSM mobile phone network went live in 1992 within the UK and with the release of new frequencies for mobile phones in the 1800MHz band, two new operators launched their networks: Mercury One2One and Orange (University of Salford, 2016).
The mobile telephony sector in the UK is made up of four (4) dominant network operators namely THREE, O2, VODAFONE and BT (EE) who hold a license each from the government to build and maintain their own mobile network infrastructure providing coverage for the whole country making it an oligopoly market. This is a market that is dominated by three or more businesses and has small businesses also operating in the market. In the UK mobile telephony market, there are twenty-one (21) Mobile Virtual Mobile Network Operators (MVNO’s) who hold commercial agreements with the big four to use their networks and therefore receive exactly the same the coverage as their primary provider. (Lo, 2016). The graph below shows the market shares held by UK mobile operators in 2015, with EE having the greatest share of 39.2% (Statista, 2016).
Figure 1

MOBILE TELEPHONY STRUCTURE IN THE UK

There has been sustained and significant private investment in the mobile telephony sector over the past two decades contributing to large-scale changes in the industry such as operators expanding 4G networks and the merge between Orange and T-Mobile which was the launch of EE but has now been acquired by British Telecom’s (January 2016). Research indicate that by May 2015, 42.4% of UK premises had 4G coverage provided by all four of the MNOs and that customer satisfaction with mobile operators has remained relatively high, at 89% in 2015 and 88% in 2013 respectively (Vining, 2016).
To use any of the mobile phone networks in the UK, one must choose from two contract types: the ‘pay-as-you-go\’ system where airtime is purchased either via the internet, in shops or the automated teller machine (ATM) or the ‘contract system’- which is either for 12 or 24 months – where bills are paid for mostly monthly – with a month’s deposit- by direct debit. One can also purchase a basic package from a chosen mobile network operator (MNO) and then later buy ‘add- on services’ to create a subscription customised to their needs. The monthly average revenue per user (ARPU) through mobile subscribers in the United Kingdom (UK) from 2007 to 2015 (in GBP), by pay type is shown in Figure 2 below. The statics show the ARPU generated in 2012 across all subscribers (blended ARPU) amounted to 16.14 British pounds (Statista, 2016).
Figure 2
Findings of a research conducted by Mintel (market research) reveals that consumers prefer shorter contracts and that although over half (52%) of the people with a mobile phone contract or post-pay connection have a 24-month contract (which can restrict potential for annual handset upgrades) and 17% have a 12 month contract, the proportion of 16-24 year olds consumers taking 24-month contracts has dropped, with most of them preferring the 12-month or rolling month-by-month deals (Mintel, 2015). Even though mobile penetration in the UK is above the EU average, subscriber base growth remains strong as most adopt the use of additional SIMs. Fierce competition is forcing operators to concentrate on packaging service bundles and promotions with growing mobile data use offsetting lower voice, interconnection and roaming tariffs. In addition, ARPU is falling steadily for all operators.
With the ever-increasing mobile internet usage and the growing adoption of new technologies these days, the operators must add capacity- fast, reliable mobile experience- to their development plans so that the British public can have reliable network access wherever and whenever they need it. A look at the overall performance in network speed performance, network reliability performance, mobile internet performance, call performance, and text performance of the four main networks in Britain, taken in the first half of 2015 shows EE as an all-rounder across the nation with the exception of reliability when ‘Three’ overtook them (Andersen, 2016). Details of the performance is illustrated in Figure 3 below
Figure 3
The use of the smartphones is on the rise and this is captured in Ofcom’s 2015 communications market report which reports that a third (33%) of internet users see their smartphone as the most important device for going online, compared to 30% who still prefer their laptop. The rise in the use of smartphones to browse the internet is a clear shift since 2014 when just 22% turned to their phone first and 40% preferred their laptop. It reflects the fact that smartphones have become the hub of our daily lives and are now in the pockets of two-thirds (66%) of UK adults, up from 39% in 2012. The clear majority (90%) of 16-24 year olds own one; but 55-64 year olds are also joining the smartphone revolution, with ownership in this age group more than doubling since 2012, from 19% to 50%. This surge is being driven by the increasing take-up of 4G mobile broadband, providing faster online access. With the introduction of 4G, subscriptions have leapt from 2.7 million to 23.6 million by the end of 2014 and this is illustrated in Figure 4 (Ofcom, 2015).
Figure 4
As at today, indoor 2G mobile voice coverage reaches 98% of people’s homes and offices. But that still leaves 2%, or half a million premises, without a signal. Ofcom wants to see the widest possible availability of communications services and is considering what further options might be available to improve coverage in both mobile and fixed-line broadband, as part of the Digital Communications Review. Quite recently the mobile telephony industry has seen a lot of developments including sky entering the mobile market via its MVNO Sky Mobile (Goss, 2017); BT retaining EE as a separate business post-acquisition; EE launching Wi-Fi calling service; EE developing micro antennae technology to extend mobile services to remote communities; TalkTalk securing access to O2’s LTE network; Government committing £150 million to its Mobile Infrastructure Project to improve rural mobile coverage which is followed up by Ofcom amending MNO licences to guarantee 90% geographic voice coverage by end-2017 and reiterated by Sharon White, Ofcom Chief Executive, when she said: “Today’s report shows just how important reliable, fast internet access is to millions of consumers and businesses. Improving the coverage and quality of all communications services across the UK is a priority for Ofcom, for people at work, home or on the move.”(Ofcom, 2015)
In conclusion, there is no questioning the fact that the mobile phones have a tremendous and lasting impact on everyday lives to the extent that the UK government has identified telecommunication as one of the top 10 sectors deemed to be part of the ‘Critical National Infrastructure’ (CNI). This is also evidenced in the social life of the country being highly dependent on telecommunications too: be it the capability to broadcast TV to every home, for friends to ‘text’ one another to arrange their appointments or for anyone to summon the emergency services via 999. The defence and security of the nation is not left out of this as it also highly dependent on reliable communications. Telecommunications therefore has a ‘multiplier’ effect and its importance to the democratic tradition of this country and the way of life (shopping, banking, watching TV and communicate) thanks to superfast 4G, is immense.

REFERENCES

Andersen, D. (2016). Mobile Network Performance in the UK. Available from http://rootmetrics.com/uk/blog/special-reports/2015-2h-national-uk [Accessed 17 December 2016].
Goss, P. (2017). Sky Mobile launches in the UK today. TechRadar, 5 January. Available from http://www.techradar.com/news/sky-mobile-launches-in-the-uk [Accessed 7 January 2017].
Lo, K. (2016). How To Check & Compare UK Mobile Coverage: Networks & MVNOs. Available from http://kenstechtips.com/index.php/mobile-operators-explained-virtual-networks-and-coverage#About_MVNOs [Accessed 17 December 2016].
Mintel (2015). Ringing in the changes: mobile phone market returns to growth in 2014. Available from http://www.mintel.com/press-centre/technology-press-centre/ringing-in-the-changes-mobile-phone-market-returns-to-growth-in-2014 [Accessed 22 December 2016].
Ofcom (2015). The UK is now a smartphone society. London. Available from https://www.ofcom.org.uk/about-ofcom/latest/media/media-releases/2015/cmr-uk-2015 [Accessed 7 January 2017].
Statista (2016). Market share held by mobile operators in the United Kingdom (UK) as of June 2015. The Statistics Portal. Available from https://www.statista.com/statistics/375986/market-share-held-by-mobile-phone-operators-united-kingdom-uk/ [Accessed 17 December 2016].
University of Salford (2016). Mobile Phones. Computer Networking and Telecommunication Research. Available from http://www.cntr.salford.ac.uk/comms/mobile.php.html [Accessed 21 December 2016].
Vining, M. (2016). Mobile Coverage: A good call for Britain? 35. Available from http://britishinfrastructuregroup.uk/wp-content/uploads/2016/10/Mobile-Coverage.pdf [Accessed 17 December 2016].
9.1.2017

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