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PROFUNDUS CONSULTING LTD
Company
Profile
Five
Years of FullUK Competition
A
perspective of the UK market in the light of just published
market statistics for the five years to March 31 1997.
Eight
years of cosy duopoly did little more than pave the way for
the dynamic new era of full competition in the UK telecomms
services market which effectively began in 1992. Since then
usage has soared and prices crashed - in revenue terms, more
or less cancelling each other out. This is a trend expected
in other European markets as they liberalise.
Telecomms
services retail turnover in the UK is £15 bn and, after stripping
out internal purchases and payments to other operators, this
falls to £12 bn of ‘added value’ (equating to 2%
of UK GDP). A ‘Gross Turnover’ figure of £22 bn
also includes interconnect revenues, data services, CPE, cable
TV and other ancillary goods and services.
BT
accounts for 65% of gross turnover. Whether this is considered
worthy or disastrous depends upon one’s point of view.
Certainly one assumes that new entrants are content with the
£6.7 bn market opportunity realised. As a predictor of how
other incumbent operators will fare in the five years from
1998, it is probably an unreliable guide. Regulation, cultural
and other differences between markets will lead to wide variations.
However, the extent to which prices have fallen, the take-up
of new services and how BT has maintained its high profitability
all offer valuable lessons.
It is
notable that competition strikes hardest where profits are
highest. Hence BT’s share of international calls is
below 50%, but its share of exchange lines remains at 92%.
One
lesson that can be drawn from the UK experience is that
national and international capacity can readily be bought;
too many operators have built infrastructure only to see oversupply
drive down prices in a thriving wholesale market. One new
entrant, for which Profundus has provided strategic advice,
makes more money from reselling national call minutes than
from providing a range of international services on its own
infrastructure! However, this is a lesson which many new entrants
in other European countries are cheerfully ignoring in their
dash to own infrastructure.
The
exception is in the local loop, where BT’s artificially
depressed rental charges allow it to continue to ‘own
the customer’. Direct fibre connections are routinely
provided for larger business users and Fixed Radio Access
in the residential sector is making some small progress, but
the only major mass competition for local access is from cable.
With penetration stuck at 20-25% of homes and businesses passed
and with regulatory obligations to achieve swift penetration
of franchises, the cable companies have been under pressure.
However, costs have been cut, consolidation has begun, network
build is nearing completion and TV programming deals have
been struck. With most major CATV operators showing positive
cashflow their time may now be near (a view that the stockmarket
has been slow to appreciate, the result being some great bargains
to be had).
Oftel
now collects data from 59 UK operators and compiles statistics
on the market. These tell a fascinating story. Click here
some highlights.
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