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August 21, 2012

Why Ofcom has made the right decision

Despite the outcry from Everything Everywhere’s competitors, Ofcom has made the right decision in allowing it to launch 4G first.

By Cbr Rolling Blog

See story ‘Ofcom Shocker: UK to get 4G LTE mobile in 2012’

The sooner we, as a nation, get 4G LTE into the field, the sooner we, as a nation, can catch our international competitors. The problem is, most of the UK telcos have only been thinking of their own interests and shareholders, not the national good.

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I’m not going to pretend for a minute that Everything Everywhere – a joint-venture between Deutsche Telekom and France Telecom – has any UK national interest at heart. They just want to make money like any other market participant.

Ofcom has just given them the all clear, and boy has it made O2 and Vodafone furious. Welcome to Capitalism 101 boys.

They are furious because the new kid just made them look like fools. EE was more business savvy. In the truest sense of capitalism, they spotted a hole in the market (lack of 4G), a loophole to jump through (1800MHz) and went for it all guns blazing (investment and advertising).

They saw that Vodafone and O2 were late to the party on 4G. EE wants to be the leader in the next generation of mobile technology – and this is their head start.

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We tend to forget that the UK is one of the luckiest mobile network markets in the world. We have four mobile operators, and consumers have a myriad of Mobile Virtual Network Operators to choose from. It is among the most cutthroat and brutal Telco markets of its kind anywhere in the world. We have no state owned operators that curry favour (O2 used to be BT before it was sold Telefonica).

Put simply, Britons love mobile gadgetry. Not even the Americans can boast three players of such power in a single market. It means consumers have plenty of choice, a healthy rate of churn and nice low prices.

Rumours persist that we may even see a fifth entrant at the year-end spectrum auction.

Until the last half decade, the UK had been a world leader in mobile technology – historically, a world GSM leader and a 2G and 3G pioneer. It is now a joke.

Why is it a joke? Because the two largest players have used their dominant position in the market to preserve their margins at the expense of progress.

Yes, Vodafone and O2 may have spent way too much at the 3G spectrum auction 10 years ago. This meant they built weak 3G networks that, even today, mean users can’t receive more than a few bars on a mainline train, or the M1. O2’s outage before the Olympics was a case in point.

Why should the market cater to the lowest common denominator?

In classic market disruptor status, Three, Orange and T-Mobile (EE), looked at the market and knew they had to do better. Both have suffered for a time, EE through its merger and subsequent penalties (which is again, part and parcel of regulated capitalism) and Three struggled to find a niche (now it is doing well, positioned as a high quality, data first network).

It is hilarious then to find the two ‘newer’ operators doing the investment and providing the high quality networks that customers have been screaming for. EE has boosted its 4G infrastructure spend to £1.5b and, in partnership with BT, has been testing 4G around the country since September.

It’s about being proactive – Three and EE have been. O2 and Vodafone haven’t.

O2 and Vodafone had every advantage. The legacy networks. The money. The expertise. The political connections. They chose to use their lawyers instead. They are as much to blame for the endlessly delayed 4G auction as anyone else.

Expect to see T-Mobile 4G by year end
Expect to see T-Mobile 4G by year end

Yes, I’m sure there was fine print in Ofcom’s proposals that may have given this side or that side a slight advantage. I’ve read them. These ‘rulings’ were hardly enough to destroy a company, or distort the market to a ridiculous extreme. Auctions by their very nature aren’t fair – he who has the most money can always win. Much of the legal horseplay here has not been about ‘market fairness’, as EE’s competitors thump their chests about, its been about getting more preferential treatment for your party and it backfired.

Great companies relish a challenge. They don’t hide behind lawyers.

Ofcom wanted a multi-party competitive market – accept that. Accept that we, as consumers, want you to make less money – yes, you read that correctly – less money, by being properly regulated and letting smaller companies like Three get into the game. We, the end users, don’t want duopolies. And nor should the companies involved. If you’re the best – prove it.

Delaying the auction endlessly, effectively handicapping your competitors by keeping them in your 3G dominated generation, smacks of arrogance.

It may have taken some time, but the politicians and the regulator have finally realised what a fiasco the whole situation has become.

There are already 80 4G LTE networks active in the world. The UK has none of them. Germany, the USA, South Korea, and other key economic rivals are already working towards network maturity. Even if 4G launches here now, we still won’t have mature networks before 2015.

When it gets to the point where the government is feeling a bit embarrassed – and a pro-business, pro-technology, Tory government at that – then you, as a private sector leader, have really dropped the ball.

Wi-Fi and 4G are no longer luxuries; they are an essential part of the nation’s digital infrastructure – at least on par with fibre, which the government has pursued with venom. It’s costing the nation £1 million a day, and will add £75bn to GDP by decade’s end.

The pressure is now on EE too – is going to have to be at the top of its game. It has used up all its good will now, and they had better launch an A grade network. The UK has seen enough of the ‘good enough’ approach to infrastructure.

Yes, it is less than ideal that we have one operator launching while the others have to wait until next year. But the fact is, as much as I hate the idea of the largest mobile operator ahead, they’ve earned the dog-eat-dog right to do so. The UK needed 4G yesterday. Its too important.

Sometimes the regulator’s role is to step in and make a decision that is the best for all of us – even if it is a bit autocratic. I applaud Ofcom for finally having the cojones to make a call like this.

Perhaps this will be the wake-up call the operators need – all of them.

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