Home Featured Slider Vodafone-Hutchison merger is good news for competition

Vodafone-Hutchison merger is good news for competition

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Yesterday’s announcement that Vodafone and 3 will merge in Australia bodes well for the industry, according to telecommunications analyst, Paul Budde.

Sometimes it makes sense to reduce competition in order to establish more competition.

This is the case with the mobile merger. Size does matter in a market that is rapidly being commoditised. BuddeComm has been foreshadowing this development of commoditisation for many years, and similarly we have also indicated that industry consolidation was overdue.

Vodafone made a significant strategic mistake in the 1990s when it didn’t start off by reselling the Telstra mobile service, as Optus did. It therefore never reached the scale needed to become at least the second player, which is the mother company’s goal in countries where Vodafone is not the number one mobile operator.

Hutchison took a scattered approach in mobile during the 1990s, which saw it investing $3 billion (sometimes in overlapping areas). This saddled the company with such a debt that it would be impossible to recoup that investment.

At the same time, these two companies have been the leaders in service innovation and they have consistently come up with ‘wow’ applications. However, their scale nearly always meant that they were unable to build up to such a market size that they could really compete with Telstra and Optus.

Through the merger they are now in a position where they potentially could become the Australian leader in mobile service innovation and, as such, could threaten the positions of both Telstra and Optus.

Optus, of course, is particularly vulnerable as its size is now nearly matched by the size of the merged entity. But, equally, once the new company has its mobile broadband network in place – the success of which will very much depend on applications – it will also threaten Telstra’s hegemony in this market.

There certainly is the potential for increased competition in the mobile market, something that will be welcomed by the customers. Obviously the ACCC will want to have a good look at the plans, but unless the companies are hiding something that we don’t know about I can’t see any serious problems in obtaining regulatory approval.

What we are also certain of, however, is that the ACCC will now increase its vigilance in the mobile market, as even greater opportunities for collusion now exist. As I mentioned above, the mobile market is rapidly commoditising and there will be an increased demand for access to mobile infrastructure to deliver new services to the market.

Furthermore, we do see a further integration between fixed and wireless networks and this will no doubt result in pressure being put on the mobile operators to open up their networks for wholesale.

If the operators refuse to do this voluntarily I predict that in three years’ time the political and regulatory pressure will be stepped up to create structural changes in the mobile industry, not all that different from the discussions that are currently taking place in relation to the fixed network.

Paul Budde is managing director of Paul Budde Communication (trading as BuddeComm), a global independent telecommunications research and consultancy company, which includes 45 national and international researchers in 15 countries. Budde.com.au has 2,000 research reports covering 170 countries, 400 companies and 200 technologies and applications. The company operates what is believed to be the largest telecommunications research service on the Internet and has over 3,000 customers in 80 different countries.

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