The history of consolidation in the mobile phone network industry dates back to the early 1990s. At that time, the UK market was dominated by two companies, Vodafone and O2, competing fiercely since they first launched their services in the mid-1980s. Their fierce competition resulted in significant consumer cost savings, and the resulting price wars were highly profitable for both companies. However, in the late 1990s, the market began to diversify as customers started moving away from the traditional landline telephone service towards cheaper alternatives provided by mobile phones. This trend continued throughout the 2000s when smaller players entered the market and successfully challenged the incumbents regarding customer satisfaction and profitability. In recent years, however, the mobile market has become increasingly consolidated. Today, only three major players are left in the UK market – EE, Three, and Vodafone.
History of Consolidation
In 2001, BT Group acquired Orange’s UK business, thus becoming the largest MNO in the country. This acquisition allowed BT to expand its reach across the UK and offer high-speed internet access to consumers while simultaneously enabling them to compete with O2, which had previously been the dominant player in the UK mobile market. As a result, the number of subscribers increased significantly, reaching over 14 million people in 2003. By 2004, the market share of BT had risen to almost 50% due to the expansion of its coverage area. However, the company faced a challenge in 2006 when the regulator Ofcom announced new rules requiring operators to open up their networks to third parties. Under these new regulations, companies could no longer use their monopoly to charge excessive consumer prices. Instead, they had to allow any provider to enter their territory and sell affordable mobile services to consumers. This decision forced BT to drop its price war strategy and focus on expanding its infrastructure instead of relying on aggressive pricing. Consequently, sales decreased drastically, and the company lost around £100m the following year. To regain its position in the market, BT decided to concentrate on developing its core businesses, namely its broadband and telephony services. To achieve this goal, the company sold off a majority stake in its mobile division to Vodafone for approximately £11bn in 2007. Despite this sale, BT retained ownership of its fixed-line operations, including its copper wire network. After several failed attempts to acquire T-Mobile USA, the German incumbent, Deutsche Telekom, purchased the remaining shares in 2008 for $15.8bn. On the same day, the remaining shareholders of BT agreed to merge the company with Openreach, a subsidiary of BT, to create a single entity called EE Limited.
There have been three evolutionary stages in the MNO industry. These are the original MNO stage, the second generation MNO stage and the third generation MNO stage. Let’s take a look at each one of them:
Original Stage (O2):
In the initial stage, O2 took the lead and was the only company providing voice calls. Any of the companies back then did not provide data connections. The actual stage lasted until about 2002.
Second Generation Stage (EE):
This was the start of the second generation MNO industry. At the beginning of this stage, both O2 and EE started offering data connections alongside voice calls. By 2007, EE overtook O2 in terms of subscribers.
Third Generation Stage (Vodafone, Three, O2):
This is where the third-generation MNO industry kicked off. In 2008, O2 decided to merge with T-Mobile and became part of the newly created company named ‘Three’. This merger meant O2 gained access to T-Mobile’s extensive data infrastructure. As a result, O2’s subscriber base increased dramatically. In 2010, Vodafone acquired the remaining shares of O2, giving them full ownership of the company.
As mentioned earlier, the number of subscribers grew tremendously throughout the evolution of the MNO industry. According to figures published by Ovum Research, there were just under 40 million subscribers in the UK in 2006. By the end of 2009, this figure had risen to almost 80 million. That is an increase of 44 per cent. But what got everyone talking was that the number of active users had increased by 72 per cent.
The mobile phone network industry consolidation can be traced to the 1990s in the UK when Vodafone and O2 were the dominating companies in the sector. The stages of consolidation are three in number, which evolved the MNO gradually till the present stage. As a result of this evolution, there are currently three major players still relevant in the sector (in UK market) i.e. EE, Three, and Vodafone.
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