By Joakim Reiter, Vodafone Group Chief External & Corporate Affairs Officer
As Europe weighs merger reform, policymakers have a timely opportunity to reassess the relationship between telecoms scale, investment and consumer outcomes.
Europe’s mobile sector has moved from the voice and SMS era into a data-intensive 4G and 5G era in which usage continues to rise, revenues per user are constrained and the investment required to build deeper, more capable networks keeps increasing.
A new report from GSMA Intelligence, Efficient operator scale in European mobile markets, looks at how these developments have outpaced competition policy, and spotlights the facts about scale in the sector.
GSMA Intelligence confirms that Europe is the least concentrated major mobile region in the world. Measured by the Herfindahl-Hirschman Index, a standard method used by competition regulators, and by the combined share of the two largest operators, European markets are more fragmented than those in North America, China, the Middle East and North Africa, South Asia and other leading regions.
Europe is also the only major region where in-market concentration has not increased significantly during the mobile data era, precisely when scale has become more important.
This has consequences. Since 2016, operators in three-player European markets have invested around 48 per cent more per connection than operators in four-player markets. Those markets have also delivered download and upload speeds around 15 per cent higher on average, alongside earlier and more extensive 5G coverage and higher 5G adoption. Crucially, GSMA Intelligence finds that these better outcomes have not come at a higher price to consumers.
Mobile broadband adoption is already mature in almost every European market. But while traffic per connection has risen sharply, revenue per user has not risen with it. More data does not automatically mean more revenue. It usually means more capital expenditure to maintain quality, capacity and resilience.
A mobile operator with a larger national subscriber base can spread fixed network costs across more customers, deploy spectrum more efficiently and improve the return on each upgrade. It can invest with greater confidence in 5G standalone, network densification, enterprise use cases and the capabilities that make 5G materially different from 4G.
By contrast, a sub-scale operator must fund the same investment from a smaller customer base, in a market where revenue growth is limited and capital intensity remains high.
GSMA Intelligence also finds an inverted-U relationship between market concentration and investment. Investment rises with scale up to a certain point but then declines only at concentration levels that most European markets are far from reaching. A move from a four-player to a three-player market would typically shift a market into the range where investment incentives are strongest.
A more modern understanding of effective competition in a capital-intensive infrastructure market is long overdue. Competition in mobile is increasingly driven by network quality, coverage, reliability and capability, not only by short-term price movements. A merger assessment that looks mainly at operator count misses the dynamic effects that matter most to consumers and businesses over time.
The price evidence is important. GSMA Intelligence finds no evidence that increased concentration has resulted in higher consumer prices in the 4G and 5G data era across entry-level tariff baskets, high-usage baskets, ARPU and revenue per megabyte.
The experience of actual market changes reinforces this point. Since 2010, GSMA Intelligence finds that consolidation in countries including Austria, Ireland, Norway, the Netherlands, Spain, Romania has been associated with increases in operator capex per connection of around 28 to 38 per cent. Consolidation in mature markets improves weighted download speeds, with GSMA Intelligence finding improvements equivalent to a 25 per cent increase over the full period studied.
The same GSMA analysis finds that consolidation was not associated with higher ARPU. In mature markets, real ARPU fell by around $1.5 to $1.6 per month following consolidation. This suggests that scale efficiencies can support better networks and lower unit costs, with benefits passed through to consumers.
But the GSMA Intelligence report tells a difference story about market entries in Europe. It finds they were associated with no clear uplift, and in some cases negative effects, on investment. They were also associated with weaker network-quality outcomes and smaller, less consistent price reductions than those observed after consolidation.
This is why policymakers should be clear-eyed about the trade-offs. Adding another network divides the existing customer base across more operators, often weakening investment economics where fixed costs are large and returns depend on scale.
The instinct has been to preserve the maximum number of mobile network operators, even where that has meant weaker investment economics and slower network progress. But if policymakers want world-class networks, they must allow market structures that can support world-class investment.
That means recognising efficient scale, modernising merger assessments and judging competition by what it delivers in practice - better networks, reliable coverage, innovation, resilience and affordable services.
Europe’s mobile future will be secured by enabling the investment needed to build the networks Europe says it wants, not by counting operators in markets.
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