By Diane Mullenex

Setting out its position in a new paper addressing its future approach to mobile markets, Ofcom said Three, one of the four MNOs that currently dominate the UK mobile market, believes “consolidation is needed in the UK so that all MNOs have the required scale to invest in high-quality networks”.

However, it said that while MNOs “face a challenging investment climate” and warned about how this may impact their incentives to invest in future, it believes they currently have “commercial incentives to continue to invest to improve mobile networks”.

The Ofcom paper added: “While MNOs have said that their financial performance in recent years has not been supportive of investment, they have all undertaken significant investment: a total of £2.7billion (US$3.27billion) a year on average over the last five years. In addition, their business plans show that they plan further significant investment over the next few years, to deliver increased capacity and widespread rollout of 5G, with some looking to launch 5G standalone shortly.

 “We recognise though, that the current economic climate creates greater uncertainty and challenges to financial performance. This may dampen MNOs’ incentives to invest and could slow down the rollout of 5G.”

In recent months, Three and Vodafone have held talks over a potential merger. Ofcom said there had been a perception that it has “an entrenched position against future mobile consolidation” but said this was not the case.

The economic environment is posing significant investment challenges for all businesses including MNOs, with little sign of let-up, in the short-term at least. This strengthens the case for market consolidation given the efficiencies that companies can achieve through mergers and acquisitions, so a more agile regulatory approach to the MNO market is welcome in this respect.

However, how the apparent willingness to consider mergers tallies with the broader push for supplier diversity in telecommunications in the UK and beyond remains to be seen.

Competition in the market can drive businesses to innovate and generally leads to greater choice and lower prices for consumers. However, too much competition can be an inhibitor to business investment and a barrier to innovation as a result.

Policymakers and regulators have been seeking to find the right balance for years across different markets, including in the mobile market where the current economic climate is reigniting old debates.

Across Europe, many countries have highly fragmented mobile markets – even some small countries have as many as four mobile operators, many of which are saddled with debt and wary of upgrading their networks to 5G without a clear path to recouping the investment.

Greater consolidation in Europe is considered essential to address the problem and the need for better connectivity in the UK makes the case for consolidation there too – the UK ranked just 35th out of 220 countries in the worldwide broadband speed league 2022, behind 18 other Western European countries

• Mullenex is a Partner and telecoms sector specialist at Pinsent Masons.