After months of rumors, the EU finally decided to block the £10.5 billion takeover of Telefonica's O2 UK by Hong Kong’s CK Hutchison, the owner of Three UK. Brussels loves to shine as the white knight protecting UK consumers from higher prices and less choice. Yet, I believe the rollercoaster will continue.
But what does this prevented merger really mean for the UK telco market? What does it mean for business customers? And what does it mean for the telcos concerned? In my opinion:
- UK consumers should expect the same dull mobile offers that they have been receiving for years. There are no signs that any telco in the UK market is about to radically rethink its offering along the lines of the T-Mobile US reset that John Legere kicked off several years ago after the T-Mobile/AT&T merger fell through. Rather, I expect more business-as-usual in the UK and no step-change in mobile broadband investments, and as a result, no great benefits for consumers to arise as a result of the merger blockage.
- UK businesses should expect the same mediocre mobile broadband for the foreseeable future. Hutchison had offered billions of pounds in investments in mobile broadband as part of the takeover. This would have been good for business users relying on cloud-based services. Of course, the remaining UK telcos will invest in mobile broadband in the years to come, especially those that massively underinvested in previous years. But business users should not expect a step-change in mobile broadband experience ahead of 5G investments late in this decade.
- Mergers per se will not help the telco industry out of the doldrums it got itself into. We can expect weeks or months of speculation about which telco or VC could possibly take over O2 UK. But this speculation misses the point. The huge success of T-Mobile US under John Legere shows that even a small telco can radically alter its fortune by adopting a completely new way to engage with the customer through new types of deals and tariff structures.
- To win in the years ahead, every telco executive should examine the example of T-Mobile US and look very closely at the customer satisfaction levels that telco customers have with MVNOs. How can MVNOs have much higher customer satisfaction levels than the network operators of the network infrastructure that the very same MVNO uses? How is it possible that Congstar or Tesco Mobile, MVNOs that use Deutsche Telekom’s and O2 UK’s network respectively, enjoy higher customer satisfaction than that of Deutsche Telekom and O2 UK? The answer is that Congstar and Tesco Mobile outcompete the network operators in terms of customer engagement by a mile.
Rather than playing the cost squeezing game in the form of telco consolidation, telco executives need to make customer experience and satisfaction the absolute focal points of their activity. Perhaps — as a first step — an interesting and effective option would be for Telefonica to retain O2 UK, hire John Legere and his team from T-Mobile US, and let him loose on the UK mobile market. This scenario could really shake up the UK telco market. But I am sure this is the last scenario that Brussel’s telco regulator are hoping for.