Are we heading for a major mobile market shakeup in the Asia-Pacific region? In May, Telenor and Axiata announced they were in talks to merge their Asian operations. If the merger goes ahead, the resultant operator group would serve around 300 million customers in nine countries and potentially be the largest Asian player outside China, with prospects of being in the top five globally. In a busy month, other industry moves also included plans by Hughes and Bharti Airtel to merge their VSAT operations in India. In New Zealand, Vodafone announced it was divesting its subsidiary in a USD 2.23 billion sale to a local investor consortium.
As the Telenor/Axiata move captured the limelight, developments like these underscore the continuing dynamism of the Pacific region. The overriding lesson probably emerging is that infrastructure-based, highly capital-intensive sectors require larger players bringing economies of scale to operations. Commentators suggested some Asian markets have proved challenging for new players to develop as Telenor and Axiata have both discovered. Low income levels in many countries cap service provider pricing power.
Should we be excited, concerned, or relieved when such market moves happen? Given the market issues in several of these countries, some consolidation was logical and probably inevitable. In the Telenor/Axiata case, domestic regulatory concerns probably don’t apply given the deal is fundamentally a cross-border one. But, more generally, even national watchdogs worry when mergers mean the number of players in the market shrinks, competitive pressures diminish, and potentially consumer surplus declines.
This issue was at its clearest in Australia, where the competition regulator opposed the proposed “horizontal merger” between domestic players TPG and Vodafone Hutchison on grounds of concentration of power in the mobile marketplace, as the merger would have essentially lessened the likelihood of a fourth operator. The decision reflected the complexity of the marketplace and arguably the current reality of service convergence: TPG was expected to become a mobile network operator in addition to its fixed business, and Vodafone was in the process of developing a fixed business in addition to its established mobile business. The companies have since indicated they will appeal the decision.
In fact, as Australia’s regulator showed, far from getting more intrusive, watch dogs are relatively enthusiastic about discontinuing at least some regulatory activity altogether. It dropped SMS regulation and although it said it wanted wholesale voice regulation to continue, it said it also wanted to discontinue reporting requirements in dark fibre and NBN aggregation markets.
But, as Australia’s decision has shown, merger control can significantly impact the marketplace and indeed the wider industry landscape. Similar issues have been brewing in the U.S., where the FCC indicated it may support the proposed T-Mobile/Sprint mega merger after the companies involved had offered various commitments in coverage and pricing. The USD 26 billion horizontal merger at least superficially resembles the Australian case in that the No. 3 and No. 4 operators plan to fuse. The FCC logic here is not one so much of antitrust considerations, but of measures that would help close the digital divide and (in a less obvious way) advance U.S. leadership in the 5G space.
FCC Chair Ajit Pai said the companies had committed to cover 99 percent of the U.S. population with 5G within six years of the merger closing, including a commitment to deliver 5G to 90 percent of America’s rural population. Most markets would enjoy at least 100Mbps mobile broadband, and 99 percent of Americans would see at least 50Mbps in the same timeframe, said Chairman Pai. We await further news from Washington and antitrust officials at the U.S. Department of Justice.
How to regulate, where to regulate, who to regulate?
Nevertheless, managing competition in markets like telecom is a tall order for regulators. Some of these issues were memorably presented in a PTC’19 Center Stage Session with Dr. George Ford which called for “economic realities” to be addressed, pointing out inherent contradictions in those policy-making approaches that wanted to see more competition at the same time as lower prices.
Service coverage, digital divide concerns, service pricing, investment levels for networks, and even economic leadership all seem to be part of an unfolding narrative involving policymakers. But, if service development is so important, how far could (and should) the U.S. government go in ensuring a 5G backbone network rolled out? One FCC Commissioner, citing various concerns arising from such intervention, went to blog his views and called ideas that the U.S. should federally sponsor a backhaul network for 5G “preposterous”.
Comparable policy questions and paradoxes emerged too in the Asia-Pacific region throughout the month. Should regulators intervene or stand back from very successful, highly disrupted markets such as that of India, which can claim enhanced coverage if not necessarily stability?
Some in the regulatory community expect even more complicated competition issues (if that is possible) to crop up in 5G. The month saw Singapore’s regulator launching what will probably be a closely watched public consultation on 5G regulation. It is planned to cover not only spectrum allocation but a more general baseline regulation of 5G operators. Above all, the intention is to maximize the benefits of the technology and in turn, stimulate the development of an entirely new product and service ecosystem.
The regulatory remit will probably widen further as new services, and perhaps more importantly, new players appear. One consultant suggested regulators would be looking at cloud providers in the future in the same way they do electricity networks. Admittedly, this is future thinking, but should we be looking to regulate platforms of any kind, in the same way we do physical telecom infrastructures? OTT players, take note.
Platforms apart, regulation is clearly getting more complicated, perhaps too complicated for many emerging economies in Africa, Asia, and many small island states to really engage with in a meaningful way. The prospect of fit-for-purpose regulation may involve far more targeted approaches than have previously been considered.
Going forward, some things may matter even more to some policymakers. In the middle of ever more complicated merger and competition tangles, Pacific trade and security frictions spilled over once again on to the regulatory plate.
More challenges clearly lie ahead.