Mobile phone merger - the opposing view

by Ed Bowsher on 08 September 2009  |  0 comments
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Supporters of the Orange/T-Mobile merger say it will be good for consumers.

Rory Cellan-Jones from the BBC wrote a good blog post today on the Orange/T-Mobile merger. I said earlier today that I thought this deal would be bad for consumers but Cellan-Jones gives a good explanation of the counter-arguments.

So  let's go through them:

Argument one: Just about everyone in the industry, according to Cellan-Jones, supports the deal. That's not what always happens when there's a merger in an industry.

My verdict - I don't doubt that Cellan-Jones's reporting is correct on this. But just because everyone in an industry supports the deal doesn't mean the deal is good for consumers. Vodafone et al are all pleased because they think that reduced competition will lead to bigger profits. In other industries, rivals often oppose a deal because they worry that a newly merged player will completely dominate the market. Orange/T-Mobile won't be big enough to do that. But with just three big players, it will be easier for the operators to raise prices without active collusion.

Argument two:  Consumers may become less confused. One analyst told Cellan-Jones that consumers currently face a 'tsunami of offers'. The merger might make it  easier for consumers 'to get to grips with the market.'

My verdict - Lots of deals is the sign of a competitive market.

Argument 3: This is the strongest argument. UK operators apparently aren't able to invest enough in infrastructure.

From Cellan-Jones's blog:

'As more and more of us start using the mobile internet, the strains on the networks are becoming ever clearer. Neither T-Mobile nor Orange has been that successful in the fast-growing mobile broadband area - perhaps their joint network will now be able to some real competition to Vodafone, currently the leader in this area.'

My verdict - I'm still not entirely convinced by this argument. As mobile internet continues to grow, the potential rewards from further investment will just be too big for Orange and T-Mobile and they will spend more - even as independent players. Let's not forget that only a few years ago there was massive over-investment in telecoms infrastructure in the UK. That's not economically efficient, so I'm happy if the latest generation of mobile players are only prepared to invest when there is a compelling case for that investment.

So please do read Cellan-Jones's blog. Maybe when you've done that, you'll think I'm wrong. But, for me, the case in favour of the T-Mobile/Orange merger is far from proven.

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