Ofcom softens position on UK mobile market consolidation

Currently the UK mobile market is dominated by four MNOs – EE, Virgin Media O2, Three and Vodafone.

Prior to the 2021 merger between Virgin Media and Telefonica, which created Virgin Media O2, the last major attempt at consolidation in the market concerned the proposed merger between O2 and Three, which was blocked by the European Commission on competition grounds in 2016. Though the Commission’s decision was ultimately annulled by the EU courts in 2020, the deal was never reignited. Both Ofcom and the UK’s lead competition authority, the Competition and Markets Authority (CMA), expressed opposition to the deal, which had fallen subject to Commission scrutiny because of its size and the fact it manifested pre-Brexit.

However, in a wide-ranging new discussion paper concerning its future approach to mobile markets (77-page / 1.45MB PDF), Ofcom said it was “clarifying” its position on market consolidation.

It said: “The question of whether a particular merger is likely to result in a substantial lessening of competition depends on the effectiveness of competition that can be expected in the market after the merger, rather than just the number of competitors. Our stance on a potential merger would therefore be informed by the specific circumstances of that particular merger, taking into account how markets are evolving.”

Ofcom set out its position after citing changes in technology and consumer demand in recent years. It predicted that companies other than the four main MNOs would emerge in future to provide networks, sell mobile internet access, and provide online services.

The evolving market means it is “a good time” to review “how well the market might work for people and businesses” and consider the approach to regulating it, Ofcom said.

The regulator said, however, that it is “not proposing new regulatory interventions in mobile markets at this stage” and would instead “continue to monitor how competition evolves and assess any key risks that might affect the delivery of good outcomes”, and “engage and take action where necessary”.

Ofcom said, though, that it does intend to be more explicit in future about how it has “considered investment when making policy decisions”, and it is undertaking a review of the UK’s ‘net neutrality’ rules. It expects to publish initial findings from that review in the summer.

In a separate discussion paper (47-page / 3.28MB PDF), Ofcom said it plans to “shift” the way it manages spectrum to account for the growing demand across industries for access to spectrum to support wireless connectivity.

The regulator is not making any proposals for change currently, but instead said it wants its discussion paper and associated consultation “to encourage longer-term thinking about how public mobile networks in the UK may need to evolve to meet future demand, in light of expected growth and demand for spectrum from other users”.

In its paper, however, Ofcom said that while it expects the supply of spectrum to be sufficient to meet demand for the resource over the remainder of this decade, there is “a greater level of uncertainty” about that beyond 2030. It said freeing up additional spectrum for use by industry may not provide a solution in isolation and that “significant ongoing investment in mobile networks” will be required, including in relation to the densification of networks to build the necessary capacity to meet demand.

“Additional new mobile spectrum beyond the existing pipeline of spectrum could help facilitate the provision of additional capacity, but would not on its own be expected to be sufficient to meet future mobile data traffic growth in all areas,” Ofcom said. “Further, making additional spectrum available for high-power outdoor mobile use would likely require clearing bands of existing users. We think there may be opportunities for mobile networks to share spectrum with other users, for example through more localised access or lower power use.”

“We anticipate that significant ongoing investment in mobile networks will be needed to expand capacity, improve quality and deliver new uses to meet future customer needs. Densifying mobile networks as part of this, including with potentially significant numbers of small cells, would be a change in how mobile networks are deployed in the UK. We believe this change will be needed in the medium to long-term to meet anticipated growth in demand, and to optimise the use of mmWave spectrum in capacity-constrained locations,” it said.

mmWave spectrum offers high-speed, low latency connectivity, but those qualities only apply at short range and the strength of signal can be affected by weather conditions, according to an explanation of the technology by 5G Radar.

Both Ofcom’s discussion papers are open to comments until 8 April. It said it intends to provide further updates in relation to the issues the papers address later this year.

“It is good to see Ofcom taking a purposive approach to how it wants to regulate merger activity in the future on the telecoms market and its approach to spectrum use and allocation,” Simon Colvin, an expert in technology and telecoms contracts at Pinsent Masons, said: “There are clearly some real challenges ahead in terms of how the telecoms market may evolve, the proliferation of mobile use for a wider range of consumer purposes and the need to do more than just clear or reallocate spectrum. Engagement with industry, through means such as these discussion papers and wider consultation, will be key to ensure Ofcom can adapt to the future and devise an agile regulatory approach to manage the challenges.”

Separately, the Department for Digital, Culture, Media and Sport (DCMS) has published details of a pilot scheme designed to make it easier for telecoms companies to install their equipment on public buildings and street furniture.

Under the scheme, a share of £4 million of public funds will be awarded to eight projects in England and Scotland which will “explore how digital software can help simplify local authority processes when telecoms operators request access to publicly-owned buildings and curbside infrastructure”.

Digital infrastructure minister Julia Lopez said: “Mobile companies are finding it difficult to get the data they need to check that a lamppost, bus shelter or public building is suitable for hosting their kit. These eight pilots will help solve this by modernising the way local authorities and operators work together in a way that ultimately delivers faster, more reliable mobile coverage for millions of people.”

The UK government’s ‘Project Gigabit’ initiative is aimed at boosting high-speed connectivity in ‘hard to reach’ areas of the UK. The DCMS held a call for evidence in 2021 in relation to the initiative and has now published a summary of the responses it received. It has further committed to outlining “a series of policy proposals” later this year on “how it intends to address connectivity challenges to these premises”, based on the feedback it received.

The government has further opened a procurement process for contracts worth up to £292 million for improving broadband connectivity at rural premises across Cumbria, Durham, Northumberland, Cambridgeshire, Dorset and Teesdale.