Thursday, 23 August 2012

4G for the UK: frictionless competition acts against network innovation

Ofcom announced this week that it will allow mobile operator Everything Everywhere (the company behind UK GSM networks Orange and T-mobile) to use some of its allotted radio spectrum for new ‘4G’ services. The decision provoked a predictable round of grumbling from the otherUK mobile operators, who won’t have practical 4G spectrum until Ofcom has auctioned some in 2013. For a while, the playing field won’t be quite so flat as usual.

But Ofcom’s decision, for which Net Trajectory argued elsewhere, is a Good Thing for Britain. Everything Everywhere will be able to deliver new high-speed mobile data services which the British Public, and especially the revenue-generating members of the British Public, badly want. And (another Good Thing) the availability of 4G services from Everything Everywhere will encourage the other mobile networks to resist any temptation to obstruct the coming 4G spectrum auctions.
But buried in the Ofcom’s Decision document is a chilling observation: that the benefit to Everything Everywhere of launching 4G services ahead of the other networks will be transient; that it won’t distort the market in Everything Everywhere’s favour, in the long term. Ofcom cites the example of O2, and the transience of the advantage that its early monopoly of iPhone services gave.
If Ofcom is right, then the future for innovation in telecoms services is bleak. 4G services are the most significant, interesting and publicly desired innovation in mobile networks since the 1980s. If taking the lead in 4G services can’t secure enduring market advantage, then it’s difficult to imagine that any network feature will ever be able to.
Regulators have worked since the 1980s on the assumption that competition for telecoms services is Good Thing. To encourage competition, regulators have forced network operators to make it easy for customers to leave them and go to their competitors. Any residual constancy of customer relationship appears to be a result not of brand loyalty but of the generally unexciting and terribly similar service offerings of the networks.
Customers moving between networks are a Bad Thing for Britain, because acquisition of a new customer is one of the most costly things that a network service provider has to do. The cost isn’t borne by the networks: it’s passed on to the customers, who could be spending the money better.
If, as it seems from Ofcom’s observations, innovation in network services can’t be funded by long term market advantage, then network operators will have to recoup their development costs from the public within the short term of their phone contracts. The British Public’s resolutely short-term view, its fickle willingness to flit from network to network, is working to its disadvantage.
So it’s far from clear that competition for network services has been entirely a Good Thing for Britain. The few nations who allow a single network operator may be benefiting their people more than we’d thought.

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