by
User Not Found
| 12月 09, 2016
The recent meeting between US president elect Donald Trump and SoftBank CEO Masayoshi Son is causing observers to imagine a merger between SoftBank's Sprint and T-Mobile USA, after Mr Son abandoned the idea two years ago due to regulatory opposition. The meeting may have repercussions in the UK and other countries in terms of softening regulators' opposition to the merger of mobile operators.
Three UK was denied its planned merger with Telefonica's O2 UK in mid 2016 after the opposition of the UK regulator was confirmed by the European Commission. 3 Group is currently taking the EC to court in an appeal against the verdict. The similarity to the US/SoftBank situation is clear.
The arrival of Mr Trump as president elect is also similar to the UK's Brexit vote and the arrival of a new British prime minister plus her newly appointed top politicians. In both cases, a new populist/nationalist approach will allow business rules to be re-set.
An SCIm mantra is: 'What cannot go on, will not go on.' So it is with Three UK: denied the merger with Telefonica's O2 UK, and yet successful in Italy in merging with Vimpelcom's Wind, 3 Group remains sub-scale in the UK with insufficient resources to invest in 4G rollout (never mind 5G). In Italy on the other hand it now ranks joint #1 in mobile alongside Telecom Italia and ahead of Vodafone, in terms of scale. The new JV will be able to implement a recovery plan for 4G and later 5G rollout in Italy.
Three UK needs something to change, if it is to recover. It is not the style of its ultimate owner, Mr Li Ka-shing, approximately the 20th wealthiest person in the world, to settle for status-quo when that cannot deliver expected results. Three UK currently competes against the three other larger mobile operators by hitting a sweet-spot in consumer pricing while offering an indifferent mobile data experience, with relatively weak 4G coverage. However sweet the pricing, if the mobile user experience is too poor, subscribers will flee - as happened with Sprint in the USA.
Much more attractive to Three UK than any gradual organic recovery would be a merger., instantly doublling, tripling its scale or more. This is why Three UK wanted to buy O2, and why it merged with Wind. So if 3 Group Europe wins its case against the EC; if the regulatory climate softens after any Sprint/T-Mobile merger, or even if none of this comes about, then new scenarios may emerge.
The illustration below explores some options at high level. It should not be a massive surprise if Three UK tries to merge with O2 again, or with Vodafone UK (in spite of a difficult experience in Australia along those lines - but with lessons learned), or with a media company if regulators remain opposed to four mobile operators concentrating into three. One can imagine for example a 3/Vodafone JV where Vodafone prioritizes enterprise and premium consumer users, and Three UK prioritizes value consumer users. Or a scenario where Three UK merges with Sky, which has just begun an MVNO service with Telefonica.
These scenarios are explored in greater detail in SCIm's new report on the subject, and in the new Dossier on 3 Group Europe in SCIm. For now, just remember: what cannot go on, will not go on!
...