Still with added video!
The General Court of the European Court of Justice has annulled a decision made in 2016 to block the merger between O2 and Three in the UK, potentially opening the door for consolidation.
In 2016, Europe decided it was better for sustainable competition that the four operators in the UK remain independent, blocking the mega-merger between O2 and Three. This decision has set market precedent over the subsequent period, with the generally accepted rule that bureaucrats would not allow less than four independent mobile network operators in a single market. This ruling turns that presumption on its head.
“In our appeal, we argued that the Commission’s approach to reviewing the proposed merger, and European telecoms mergers more broadly, was guided by a misconceived default view that European telecoms markets are better served by having a minimum of four Mobile Network Operators in each EU Member State,” CK Hutchison, Three UK’s parent company, said in a statement.
“This approach ignores market realities, the clear evidence of successful market consolidation in Europe and across the world as well as the very significant efficiencies in terms of increased investment, network improvements and consumer benefits that can be achieved from mobile mergers.”
As soon as the decision from Europe was made to block the merger between Three and O2 was made, the agreement between the two parties was terminated. It will now always be a case of what could have been, as this decision will not reignite talks between the two parties.
“Telefónica notes the EU Court’s decision, but the company has moved on,” a Telefónica spokesperson said. “Telefónica recently announced a transaction that combines Virgin Media, the UK’s fastest broadband network, and O2, the country’s most reliable and admired mobile operator, into a 50:50 joint venture that will create a powerful fixed-mobile challenger in one of its core markets.”
As there will be no material impact on the proposed merger between Virgin Media and O2, which was announced in recent weeks, questions will now turn to more general market consolidation in Europe
Europe has always been against market consolidation if the result leads to less than four independent service providers in the mobile segment. If concessions are offered, like in the Netherlands for example, mergers would be allowed but this would result in a diluted version of what the merging parties would have wanted to achieve.
The ruling from the General Court changes everything.
In 2016, the European Commission considered the reduction from four to three service providers would have resulted in increased prices, decreased quality of service, hindered investment in infrastructure and would have had a detrimental impact on the MVNO segment also.
The ruling which has been made public today disputes the claim there would be negative impacts on competition. Negative experiences for the consumer has not been seen in other markets around the world where there has been consolidation, while there were several flaws during the assessment process. The original assessment also failed to demonstrate effectively that network infrastructure would be impacted also.
With the General Court annulling the decision to block the merger, it is effectively saying Europe would consider market consolidation should there be a good business case. This is a very interesting ruling and statement to make, as it is effectively a green flag to the industry. Could this spur the market’s imagination for consolidation?
UK telco Three has announced the appointment of Carlo Melis as Chief Network Officer just as the Huawei saga starts to rear its head once again.
Over the course of the last week, the rumour mill has been churning at full capacity, with Huawei’s name popping up on more than one occasion. Prime Minister Boris Johnson is facing a backbencher revolt unless ‘high-risk’ vendors are removed from networks within years, while the National Cyber Security Centre (NCSC) is once again investigating whether the firm is in a sound enough position to work with UK telcos.
One might have said there were better times for Melis to join the business.
Arriving from Wind Tre in Italy, Melis has been working on network resilience during the on-going COVID-19 landscape though eventually his attention will turn to managing the spectrum portfolio and presumably creating a network which can rival market leaders within the UK. Much work has been done in recent years, though thanks to outside influences, Three is still in somewhat of a difficult position.
“Three has been on an incredible journey, completely overhauling its network and IT infrastructure and laying the foundations for a 5G network that will dramatically transform the experience for its customers, at the same time as delivering major 4G improvements,” said Melis.
“I’m looking forward to joining Three, bringing my expertise to build on the great progress already achieved and to deliver a network that will stand the business in good stead long into the future.”
The last few months have certainly been an eclectic mix of ups and downs for the Three business. The fixed wireless access (FWA) proposition and campus network offering was looking healthy before Ros Singleton left the business. These business units are still functional, but look a little weaker without Singleton involved, however it is the more mainstream 5G programme which looks more precarious.
Announced at almost the exact same time as the departure of Phil Sheppard, who was effectively the company’s CTO, was the conclusion of the Supply Chain Review. Huawei was designated a high-risk vendor, and therefore limited to providing a maximum of 35% of a telcos network infrastructure equipment. This is a significant problem for Three which decided Huawei was going to be the sole supplier of RAN equipment for its 5G network.
These are the complications Melis needs to manage over the next few months. Alongside the teething problems of a new cloud core and ensuring the 4G network remains stable during this period of dramatically increased traffic, the 5G deployment strategy needs to be reimagined. Of course, this becomes difficult when even more uncertainty is introduced by rebellious politicians and the NCSC investigation.
It could have been a smoother start for Melis…
Telecoms.com Daily Poll:
UK MNO EE has been told it can no-longer display adverts which claim it has the best network in the UK by the Advertising Standards Authority (ASA).
With a series of posters, websites and social media posts, EE managed to irritate Three with claims it was the best network in the UK, being ‘unrivalled’ and ‘unbeatable’. Three suggested the use of RootMetrics awards were not relevant and the small print was either absent or insufficiently prominent.
Although not all the complaints have been upheld, the ASA has stated EE is not able to claim it is the best network around without more consumer-friendly measurements, while the claim ‘Number 1. Network’ can be interpreted in so many different ways it could be considered misleading.
The ASA statement reads:
While we recognised the Rootscore [RootMetrics] report rated EE as the best mobile network operator, using various objective measures of their infrastructural network performance, because consumers could understand the claims “unbeatable”, “unrivalled” and “No.1 Network” more broadly to relate to the network operator and to take account of both objective measures of network performance and subjective consumer views of the service the mobile providers provided, we considered that EE should have made clearer that the claims “No.1 Network”, “unbeatable” and “unrivalled” related specifically to the report.
While the adverts cannot be used in their current form, and the telcos are regularly caught intentionally misleading consumers, this is one where you have to have a bit of sympathy for EE.
For those who are in the telecoms industry, the RootMetrics reports are perfectly adequate for measuring the performance of networks against each other. If EE was to make such as claim, using the report as evidence, at an industry conference, few would break stride. On performance metrics, such as download speed, availability and latency, EE does regularly feature as the best in the industry, though this is apparently not enough to validate it in the eyes of the ASA.
The Advertising Standards Authority (ASA) has ruled against the ‘if it’s not Three, it’s not real 5G’ ad campaign following complaints from rivals.
BT, Vodafone, an independent consultant in the telco industry and five members of the public lodged complaints against the advertising campaign, which was incredibly prominent throughout the last 6-12 months, and the ASA agrees. From here on, Three is not allowed to suggest or imply rival 5G networks are not real.
“Overall we considered they would interpret the ads to mean that the 5G services offered by other providers would not provide those significantly faster speeds and that there was little value in obtaining 5G from them,” the ASA ruling states.
“We understood that, all other factors being equal, greater bandwidth would allow a provider to support greater traffic capacity. However, because take up was still so limited, differences in 5G capacity between networks were unlikely to result in material differences in the experiences of end users at the time the ad appeared.”
Although this is a campaign which has spanned across multiple mediums, the complaints were directed towards a certain tweet and a wraparound advert which featured in the Metro, a free daily newspaper distributed prominently on the UK’s transport systems. The adverts featured mock characters such as Special Man and Burt Simpson, along with the statement ‘if it’s not Three, it’s not real 5G … We’re building the UK’s fastest 5G network’.
This is a creative and amusing approach to promote a topic which is anything but, however, it is directly and intentionally misleading. Of course Three’s rivals offer real 5G, and Three should be punished (although the ASA does not have this power), as these statements are taking advantage of a currently ill-informed general public; the vast majority do not understand what 5G actually is, therefore are likely to take such statements as gospel. It is irresponsible.
“This is part of the cut and thrust of mobile advertising,” said Gabriel Brown, Principal Analyst at Heavy Reading. “Technically, the claim ‘if it’s not Three, it’s not real 5G’ doesn’t stand up, but having 100 MHz of contiguous spectrum for 5G is an advantage of sorts for 3UK, so you’d expect them to make the most of it.
“In terms of down link speeds, the real-world customer experience will depend on how much spectrum the operator can aggregate across LTE and 5G. Looked at this way, where they have 5G coverage, all four UK operators offer speeds way beyond what any smartphone apps require.
“The UK is one of only two markets with four commercially live 5G networks – the other is the US, which is about to consolidate to three, plus a new entrant. You’d expect to see the competitive spirit at play as operators do all they can to stake a claim in 5G.”
The campaign is focused on the spectrum allocation which Three has built over the last few years, but also gained thanks to the £250 million UK Broadband acquisition in 2017. In fairness, it does have the largest spectrum haul and is the only telco with 100 MHz of contiguous, ‘touching’ or uninterrupted, spectrum in currently usable 5G airwaves.
|Spectrum frequency||Licence owner|
|3.46-3.5 GHz||Three/UK Broadband|
|3.58-4.009 GHz||Three/UK Broadband|
And while some rivals of Three might downplay the advantage contiguous spectrum offers Three, Omdia’s lead 5G analyst, Dario Talmesio points out they were the first to complain about it.
In late 2018, Ofcom approved a request by Three to make alterations to its 3.6 GHz spectrum to create a 100 MHz contiguous block of 5G applicable spectrum. As Talmesio said, the three rivals complained to Ofcom this concession would offer Three an ‘unfair advantage’ in the 5G stakes, therefore there must be some validity to the claim contiguous spectrum offers a performance uplift.
The ITU, International Telecommunication Union, is in support of these claims also, suggesting contiguous spectrum would lead to the delivery of more efficient commercial 5G services.
Irrelevant as to whether there is justification to the concept that contiguous spectrum offers better 5G, the complaints are directed towards whether rivals 5G connectivity is a genuine upgrade or not.
“Overall, I can’t disagree with the decision,” said Talmesio. “If the contentious point is the reality or not of 5G, Three’s 5G might or might not be better, but 5G by Vodafone, EE, and O2 is as real as theirs.
“Ultimately customers will be judging them by the quality of what they experience on a daily basis.”
In response to the complaints, Three suggested there was adequate information on the website, even if it didn’t fully explain the statements in the ads. As Three has 100 MHz of immediately usable 5G spectrum in one contiguous block, a position rivals would not be able to match until the next spectrum auction, as well a network which features a cloud core and 20 data centres across the UK, the performance in terms of speed and latency exceeds that of rivals.
However, the ASA has said that this is misleading. The performance is unlikely to be ‘so significantly better’ therefore it would not render them substandard or not real 5G. Ultimately, the ASA does not believe this is a fair representation of the services being offered across the competitive landscape, and Three is not being responsible with its communications.
Once again, a member of the telco fraternity is being called out for misleading the consumer. It does seem to happen more frequently in this industry than others, perhaps owing to the technical nature; the general public is under-informed due to the speed of development and the complexity of the technology, therefore there is an opportunity to spew out half-truths or opaque statements which are taken as truthful.
The telco industry does not seem to want to change its ways with misleading statements unless regulation is brought in. Three has been caught out being irresponsible and misleading here, though none of the telcos are being fair to their customers.
Perhaps this is the time where the ASA should be given more power to punish. Three cannot use these adverts anymore, though it is likely to be mission accomplished now. The seed of doubt concerning rivals’ networks has already been planted in the minds of the general public. It might not grow into anything, but as there is no financial penalty for the misleading claims, this is a no-loss gamble for Three.
If there was a financial penalty for these statements, the telcos might be forced into being honest with their customers, but as it stands, the ASA has been defanged by bureaucracy.
Aside from Italy, subscriptions grew slightly across the Three European footprint, though a 17% increase in total revenues should be taken with a pinch of salt.
Any increase in revenues should not be snubbed of course, but what is worth noting is 2019 was the first year Three Europe felt the benefits from the additional 50% share in Wind Tre which reported solid results in the second half of 2019. The pre-existing businesses seemingly had somewhat of a difficult year.
Across the European footprint, total revenues increased to roughly €10.4 billion, though this is largely down to the increase stake in the Italian business. As you can see from the table above, 2019 proved to be a mixed bag for Three.
The active customer base, as of December 31, stood at 40.6 million, a 5% decrease from the same point in 2018. Aggressive competition in the Italian market was mostly to blame, though net ARPU and net AMPU across the Group also decreased by 8% and 7% to €12.94 and €11.04 respectively.
Perhaps more than anything else, these figures demonstrate the important of a diversified business and the convergence business model. Not only will these elements build customer loyalty, but ARPU can be increased with more services being offered.
One of the more common trends across the developed telecommunications markets around the world is the decreasing price of data per GB, while more customers are shifting towards unlimited data tariffs. These trends commoditise the data transmission segment but also erode profit margins.
Three is in somewhat of a difficult position, though it is certainly not alone, as many of the individual business units currently operate as a pure-play mobile telco. This looks to be a dangerous strategy to follow, as these trends are likely to accelerate rather than reverse.
There are initiatives in place to diversify revenues, Three UK is venturing into the world of fixed-wireless access (FWA), though the broadband market is already incredibly competitive. Others have also questioned the sustainability of a FWA market when fibre deployments are accelerating, and pricing also has to be very measured. Three UK currently charges £27 a month for 4G FWA, which is competitive.
Trends influencing the European business would perhaps suggest than more needs to be done to create added-value services into the mix. Content is a popular one for many telcos, though some are looking into areas such as financial services or digital security also. Partnerships are key, leaning on the expertise of other companies (Netflix or Disney+ for example) to reduce risk, and can offer recurring revenues for the telco who has the existing billing relationship with a customer.
These numbers should be considered very worrying for Three. The commoditisation of data is only going to be more aggressive as more data-intensive applications emerge and more elements of society are underpinned by digital, and it is incredibly likely more users will be paying less for data tariffs as competition inspires the race to the bottom.
With telecommunications now acting as the foundation for almost every element of society, how telcos react to the on-going coronavirus outbreak will be critically important.
Although the UK Government has stopped short of measures implemented on the continent, at least at the time of writing, this week has seen a much sharper response to the global pandemic. With movements becoming increasingly limited, the telecommunications networks will become more critical, but what are each of the telcos doing in reaction.
Each of the telcos have made slightly different concessions to customers, though we suspect the plans will looks remarkable similar in a couple of weeks. Each will likely learn from competitors as none will want to look like they are doing less for customers than rivals.
At Group level, CEO Nick Read announced a number of measures to be applied across the European footprint.
Capacity is being increased to deal with the new spikes in internet traffic, Vodafone has said it has seen a 50% increase already, while consumers accessing government-supported healthcare websites and educational resources will be able to do so without worry about data consumption.
In terms of working with the Government, Vodafone has said it will offer anonymised data, where legally permitted, to aid in tracking people’s movements and the spread of COVID-19. Government departments have also been offered the opportunity to deliver targeted text messaging where technically possible.
To assist its own supply chain, Vodafone has said European suppliers will be paid in 15 days, instead of the customary 30 to 60 days.
From a scientific perspective, Vodafone’s DreamLab, a specialist app that uses smartphones’ data processing capacity to help cancer research projects while users are asleep, will receive a £200,000 cash injection from Group to repurpose the app to support research into antiviral properties.
Elsewhere within the Group, Vodafone Italy Foundation has donated €500,000 to support the Buzzi Foundation and the Italian Red Cross, Vodafone Czech Foundation’s emergency app Zachranka is pushing out public health alerts to its 1.3 million users and the remaining business units are all creating initiatives to help young people gain access to their digital learning platforms.
From March 23rd, Virgin Media’s postpaid customers will be offered unlimited minutes to landlines and other mobile numbers, as well as a 10 GB data boost for the month at no extra cost. For broadband, any data caps on legacy products will be lifted.
In terms of technicians and home visits, Virgin Media has now set-up procedures to protect its own employees. Three days before a scheduled visit to a customer’s home, a text will be sent to ask if anyone living at their property has been asked to self-isolate or has flu-like symptoms. If the answer is yes, the appointment will be re-arranged for two weeks later. 30 minutes prior to the appointment, the technician will phone the customer to ask the same questions.
Although this will come as little comfort to those customers who are in need of a technician, the precautions are completely understandable. In these cases, new customers will be sent a self-install QuickStart pack which will hopefully mean a technician is not needed. Vodafone has not responded to questions to what the plan is should a technician be the only option.
Like many other telcos, O2 has said all NHS UK websites will be ‘zero rated’, meaning any data used on these sites won’t count towards a customer’s monthly allowance, while it will make efforts to help those who are not able to pay their monthly bill. Customers who are concerned about the impact coronavirus will have on their monthly income are urged to call 202 to discuss the situation.
Little has been said on what work will be done to ensure the network remains resilient during the period of heightened pressure. This seems odd, as the O2 network shut down in certain areas this week, not related to increased internet traffic or congestion. Some customers might want more reassurances considering the dependence on communications infrastructure over the immediate future.
Elsewhere in the Telefonica Group, the Spanish business unit has said it will add 30 GB of mobile data to all Fusion and Movistar convergence customers for the next two months.
In response the potential of increased strain on the network, BT is seemingly not that worried; the following is an extract from the website addressing the immediate challenges:
We have more than enough capacity in our UK broadband network to handle mass-scale homeworking in response to COVID-19. Our network is built to accommodate evening peak network capacity, which is driven by data-heavy things like video streaming and game downloads, for example.
By comparison, data requirements for work-related applications like video calls and daytime email traffic represent a fraction of this. Even if the same heavy data traffic that we see each evening were to run throughout the daytime, there is still enough capacity for work applications to run simultaneously.
This is a confident position to take, though the team has also said it will prioritise emergency calls and systems supporting emergency services such as the NHS, Airwave and the Emergency Services Network (ESN), critical national infrastructure and vulnerable customers, should the network come under intolerable pressure.
The BT Group has not unveiled any new measures for consumer customers yet, though it has put in additional procedures for enterprise customers due to the increased demand for home working.
The enterprise business unit has said it will work with customers to provide short-term upgrades for network capacity, increased virtual private network (VPN) connectivity, additional conferencing and collaboration tools, as well as call routing/forwarding solutions to divert calls to home phones or mobiles.
Although Three UK does not seem to have introduced any additional policies in respect to the coronavirus outbreak, it does already have several initiatives which could prove to be quite useful. For example, free home delivery for customers and Three Store Now, which is a live stream to connect customers to in-store assistants for demos or to discuss potential purchases.
In response to almost all major sporting events being cancelled, Sky has said it will allow customers to ‘pause’ Sky Sports subscriptions without any additional charges. With the Premier League being suspended until early April, England’s cricket tour of Sri Lanka cancelled and PRO14 Rugby postponed for the foreseeable future, there will certainly be a shortage of programming for this element of the premium TV offering.
On the broadband front, although Sky has reiterated it believes its service will be consistent, it does not need to make any announcements regarding data caps, like operators in the US, as these limitations are very rare in the UK market.
The Shared Rural Network is an innovative idea from the UK Government, and now it is ready to roar forward, promising 95% geographical coverage by 2025.
The agreement will be signed by the CEOs of the four UK MNOs today, cementing down a £532 million investment from the telcos which will be bolstered by an additional £500 million from the UK Government. As well as eliminated total ‘not spots’ in the connectivity landscape, the Government has also said the deal will improve connectivity for 280,000 households and 16,000km of roads across the country.
“For too many people in the countryside a bad phone signal is a daily frustration,” said Digital Secretary Oliver Dowden. “So today we’re delivering on the Prime Minister’s 100-day promise to get a £1 billion landmark deal signed with industry to end poor and patchy mobile rural coverage.”
While this is not the first example of a Government pushing through shared infrastructure to improve connectivity coverage, it is a heavy financial commitment. The £1 billion will be used to construct and maintain the network over the foreseeable future and is a win for the bureaucrats. There aren’t many governments around the world who have been this successful in convincing fierce rivals to play nice alongside each other.
That said, there were rumours about a splinter group over the last few weeks. Although the telcos have seemingly been very open-minded about the collaboration, rumours emerged to suggest BT was being an awkward partner.
As the telco with the widest coverage across the UK, BT/EE has the most to lose should telco neutral infrastructure become more widespread. As part of the Shared Rural Network negotiations, the telcos were supposed to be opening-up their own infrastructure to rivals though some sort of compensation would be part of the agreement. BT has been negotiated hard, to such a degree a splinter group between the other three MNOs was suggested, to create a shared network without BT.
With the signatures soon to be on this agreement, it seems the bickering has been negotiated out, though it demonstrates how delicate a procedure this initiative was and is.
Nevertheless, this should be taken as the gold standard for collaboration, not only for intra-industry benefits but also public-private relationships. It is an excellent example of a government understanding the pain-points of an industry and responding with a logical solution which not only benefits the industry but consumers and businesses.
The success of this venture could also have interesting ripple effects in other regions around the world.
Africa is a continent which has always struggled in the digital economy, aside from a few small areas. Low ARPU and increasingly expensive demands for network deployment paint a difficult picture when it comes to commercial feasibility, though telco-neutral networks could be an option. We suspect there will be moneymen across the world watching the UK experiment closely with an eye on replication for profits in developing nations.
Of course, it is not only the developing nations who could benefit from such initiatives. The US, for example, is a vast nation with some very sparsely population regions. The digital divide can be as dramatic here as other less economically fruitful nations, and this could be an interesting solution.
Aside from the financial and societal benefits, this initiative could also create opportunities for more embryonic technologies in the telco world.
“Network sharing is a relatively new concept to operators, and they need the tools to enable them to successfully create infrastructure that doesn’t compromise on performance,” said Steve Papa, CEO at Parallel Wireless.
“OpenRAN (radio access network) is a new approach to building networks, being trialled today by major operator groups, which can make technology from different suppliers work together, and reduces overall complexity and costs. Operators and the government will need to strongly consider new approaches such as OpenRAN, if they want to accelerate their vision of building affordable shared networks, to close the digital divide.”
Although there is excitement about the prospect of OpenRAN as a disruptive force in the industry, few telcos want to drive forward aggressively with the technology being at such an early stage of development. With the Shared Rural Network, some of the risk might be mitigated, however.
The Shared Rural Network is designed to tackle connectivity in some of the more sparsely populated areas. The telcos should view this as an opportunity; is there a better time to trial a technology which could go wrong when there are likely to be very few customers around?
Mark Evans, CEO of O2
I’m proud of the work we’ve done to secure the Shared Rural Network agreement, ensuring customers living in rural areas will be able to get the fast and reliable coverage they need and deserve. The collaboration between the industry, government and Ofcom should be seen as a leading example of how to deliver infrastructure investment and we look forward to now rolling the Shared Rural Network out as quickly as possible
Philip Jansen, CEO of BT
High-speed mobile connectivity is a central part of modern life whether you live and work in a city centre or in the countryside. Building out fast and reliable access to 4G across the country is a national mission and we’re playing a leading role, collaborating with government and the other mobile network operators in the UK, to make this happen. The Shared Rural Network is something we can all be proud of
Dave Dyson, CEO of Three
The Shared Rural Network is a game-changer for the country with coverage from each of the four operators expanding to at least 90% of the UK’s geography
Nick Jeffery, CEO of Vodafone UK
A rural postcode should not be a barrier to receiving a decent mobile signal. Together, we have created a programme that is unmatched anywhere in the world. It will mean an end to mobile ‘not spots’ for people in the more remote areas whether they are at home, at work or on the move. We will now get on with the job of delivering it
Three UK has announced CEO Dave Dyson will leave the business at the end of the month, with Three Ireland CEO Robert Finnegan to take over a newly combined telco.
While Dyson will continue his work as a Board member and executive resource to parent company CK Hutchison Group Telecom Holdings in Hong Kong, his nine-year tenure at the head of the disruptive telco will end in just over three weeks. Three have said the decision was made for personal reasons.
“Three UK is very well positioned to grow in the market after a period of investment in 5G spectrum and more modern IT systems and processes,” said Dyson. “Robert joins at an exciting time in our history and the combined assets of the UK and Ireland businesses are a fantastic platform to deliver against customer demand.”
As you can see from the table below, Dyson has led the business through a time of growth after being appointed in 2011.
|Year||Subscriptions||Market share||Annual revenue|
|2019||10.03 million||10.86%||Not available|
|2018||10.02 million||10.89%||£2.439 billion|
|2017||10.07 million||11.06%||£2.425 billion|
|2016||9.18 million||10.09%||£2.276 billion|
|2015||8.97 million||9.84%||£2.195 billion|
|2014||8.41 million||9.28%||£2.063 billion|
|2013||7.94 million||9.32%||£2.044 billion|
The mobile industry in the UK has been somewhat stagnant in recent years, though the Three business did continue to improve revenues during this period. That said, Three is in a promising position for growth and diversification over the next couple of years.
For 5G, the telco does arguably have the most attractive spectrum portfolio, though whether this translates into increased market share and subscription gains remains to be seen. In terms of diversification, the launch of a fixed-wireless access (FWA) proposition allows Three to challenge the status quo in broadband, while a string of new hires allow Three to make a more considered effort in the enterprise market.
Three is in a healthy position though it does seem to be losing senior figures at a rapid rate.
Last month, Three announced that both Phil Sheppard, who was for all intents and purposes the telco’s CTO, and Graham Marsh, the former-Director of Core Technology would be leaving the business. Although this announcement was made in the wake of the disastrous Supply Chain Review conclusion, this is a red herring as neither exit should be attributed to this saga.
The Supply Chain Review, which restricted procurement from ‘high-risk vendors’ to 35% of the total RAN inventory, leaves Three in somewhat of an uncomfortable position. The telco signed an agreement with Huawei, a vendor deemed high-risk, to provide 100% of the RAN. Despite this being a stain on Dyson’s reputation, the work done to improve the Three business over the last nine years and create a platform for future growth should not be undermined.
Taking over at the helm will be Robert Finnegan, the current CEO of Three’s Irish business unit.
“With the integration of the Three and O2 business in Ireland largely complete, we now have a solid platform to look at the next phase of our development,” said Finnegan. “Collaborating more and progressively aligning operations and platforms with Three UK is an obvious opportunity and I am excited to be taking on this challenge as the CEO of both operations.”
With the two business units coming together, there will certainly be more opportunities to realise efficiencies, though it will be interesting to see how this combination works with Brexit. Operating inside and outside of the European Union through as a single business unit of a larger multi-national might present some complications.
Looking at the Irish business unit, this is somewhat of an interesting story.
Revenues have been falling thanks to a competitive environment eroding ARPU, though the impact of handset revenue amortisation has also had an influence on the spreadsheets. That said, looking at subscriptions, Three Ireland has wrestled a leadership position at the expense of Vodafone Ireland and the result of acquiring the O2 Ireland business in 2015.
|Year||Subscriptions||Market share||Annual revenue|
|2019||2.36 million||42.98%||Not available|
|2018||2.19 million||42.16%||€591 million|
|2017||2.06 million||40.43%||€603 million|
|2016||2.07 million||40.38%||€655 million|
|2015||2.03 million||39.43%||€689 million|
CityFibre has been announced as the new preferred supplier for 5G backhaul for Three, as the telco aims to increase competition among its suppliers.
Three is the first major telco to be wooed by the CityFibre team, demonstrating the progress of the business over recent years. CityFibre should no-longer be considered a petulant disruptor in the connectivity world, but perhaps this is an indication the infrastructure challenger is a genuine contender.
“This is a huge vote of confidence in CityFibre from a national mobile operator with big plans for 5G,” said Greg Mesch, CEO at CityFibre. “Three’s decision to leverage our rapidly expanding networks nationwide shows the critical role full fibre infrastructure has to underpin 5G rollouts and reinforces CityFibre’s position as the UK’s third national digital infrastructure platform.”
“A competitive fibre backhaul market is critical for the fast and efficient rollout of 5G,” said Dave Dyson, CEO at Three UK. “CityFibre are aggressively rolling out fibre across Britain and our strategic partnership with them will use the UK’s largest 5G spectrum portfolio to deliver the fastest 5G network nationwide.”
As part of the agreement, CityFibre will connect the 5G sites which are set to go live in the coming months as Three launches its commercial 5G services. CityFibre will also provide Dark Fibre services to Three, and small cell access points throughout its city-wide networks, providing the local fibre capacity required to support 5G services in busy urban areas.
After talking to Three, this is an effort to future-proof it’s backhaul relationships against the growing tides of data consumption in today’s 4G environment and the forecasted 5G era.
The surge in data consumption has been regularly discussed in recent years, especially with the emergence of 5G, but it is important to remember this was an existing trend in the 4G era. As applications become more data intensive, telcos have had to bring down the price per GB to meet the demands of consumers. Three suggests traffic across its network could increase 20X thanks to 5G, but in 2010 the average consumer only used 269 MB of data per month.
As it stands, the price of data transmission is directly linked to the amount of traffic which flows across a network; the price per GB is fixed irrelevant of the volume of traffic. Three has said by diversifying its supplier base and increasing competition, the aim is to decouple price from traffic growth.
An oversimplification of this process would be to imagine economy of scale. The more of a service which is purchased, the price per unit decreases. The relationships which are in place moving forward are obviously much more complicated than this, though it does appear to be a case of Three attempting to ensure it is not backed into a corner with a single supplier holding the aces.
While this is a headline which has the potential to turn heads, diversification is a process which has been on-going within the Three business for some time.
BT Wholesale, a customer of Openreach, was the primary supplier of backhaul services for Three during the 4G era, though in recent years it has been unbundling BT exchanges for years. In July 2018, Three announced a major project to unbundle 177 BT exchanges with SSE Telecoms, while it has already been working with CityFibre to provide backhaul services in Hull.
The objective here is to have less of a reliance on a single supplier, BT Wholesale and Openreach as a result, and to improve diversification. It is working towards creating a more sustainable and healthy vendor ecosystem.
This is of course not the end for the Three/BT relationship. CityFibre can offer services in certain regions across the UK but not everywhere. SSE Telecoms will help fill the void, though there are locations where it is not commercially attractive for anyone to build out moving forward. These areas, where Openreach is the sole supplier, are subject to a price ceiling consultation from Ofcom.
With the likes of CityFibre and SSE Telecoms aggressively expanding networks, Openreach will certainly face tougher competition in the coming years. For decades, Openreach has maintained a defacto monopoly on backhaul services across the market, though the telco desire for reduced costs and resilience through supplier diversity does seem to be translating into fresh competition.