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#2 – Regulators to allow increased operator consolidation – and save LTE in Europe

Northstream predicts that during 2013 European regulators will increasingly accept operator consolidation in order to facilitate better market dynamics and growth for both larger and smaller players. This will be the catalyst to revitalise the European market, boost network investments moving forward and allow regained competiveness and sustainability.

For quite a while, third and fourth place operators in many European markets have been struggling to match the profitability of their larger cousins; and have often been driving prices down in the attempt to alleviate market pressure. This has triggered a spiral effect where leading players have had to follow, causing new price reductions, and so on, and leaving lesser room for increased infrastructure investments. As of today, despite growth in users and traffic, overall combined operator revenues in Western Europe are at 2005 levels. At the same time, demand for faster data access, improved coverage and higher quality requires increased investments in network modernisation and LTE. That equation is hard to balance. In an attempt to compensate for flat lining revenues; European operators have increasingly adopted network sharing to reduce CAPEX and OPEX. However, these models have not been sufficient in easing margin pressure. This is partly because regulations have limited the level to which networks can be shared.

In complete contrast, the mobile network business in the U.S. is much healthier and the two leading players, AT&T and Verizon, dominate the market.  AT&T recently announced it would increase CAPEX 10 per cent to $22bn in 2013. The operator said it would also maintain that level for another two years. Presumably, much of this will be invested into a continued LTE network upgrade. This has been possible due to less price intensive competition; and increasing revenues and ARPU as a result of new service launches. For example, AT&T has launched a program called Mobile Share, enabling sharing of a data plans across devices. This service allows them to push LTE subscriptions and in turn raise ARPU. Consumers also do not appear to be shying away from spending a little more for the increasingly valuable service level they enjoy.

Investors and operators have understood that some level of consolidation will ultimately help market dynamics. Now we believe the time has come when European regulators will fully grasp this as well. Otherwise the region will continue to fall behind in LTE network rollout. This is to the detriment of not only operators, but also for consumers.

See Bengt’s previous predictions:

#1 – Advent of Device sector dominance to impact evolution of Mobile industry R&D

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