Why consumers always lose in 2015′s telecoms market
Plans to force both public-sector organisations and mobile network providers to pool their digital resources are doomed to fail, argues Chris Middleton, founder of Strategist Magazine, explains why
In February 2015, the government published details of over 13,000 miles of publicly owned digital infrastructure and outlined the strategic steps that it believes are necessary to ensure that these networks are deployed to improve connectivity for users across the country.
Maps of the publicly owned network are available here. Together, these assets form an "untapped resource" for the country, said the government. "Our new maps reveal taxpayer-funded networks stretching right across the country," said the Cabinet Office. "We will work with providers to exploit spare capacity while joining-up our own approach, so more people can access high-speed broadband and better mobile phone coverage."
To date, the review has focused on central government, but Whitehall is now inviting other public-sector bodies to quantify their own infrastructures and contribute to extending coverage in the national interest.
The government has said that it spends at least £1.5bn annually on public-sector networks - including masts, fibre optics, and cables - according to Cabinet Office figures, yet in the past did not publish detailed information about this infrastructure. Whitehall claims that this historic data gap meant that capacity was never used effectively. Meanwhile, public-sector organisations developed their own bespoke networks and technologies - effectively duplicating what already existed.
But is this true?
The government's strategic reveal comes in the wake of its proposed deal with mobile operators, which will force them to do something similar: to collaborate, pool resources and guarantee coverage to 90 per cent of the country geographically. But that proposal has been criticised by the operators themselves, because they claim that it would stymie their own plans to develop their networks in competition with each other.
In short, they believe that the scheme would be counter-productive and achieve the opposite result to its aims.
Given the ongoing consolidation in the mobile networks market - for example, BT's confirmed purchase of EE - the competitive stakes are rising, not falling. That won't make for easy relationships at the national strategy table (any more than asking the country's politically charged public-sector organisations to cooperate will).
Mobile operators believe that the very market forces that are traditionally favoured by Tory-led governments would be a better guarantor of service coverage and quality than being obliged to cooperate by government mandate - a view apparently echoed by public-sector organisations in the past in their construction of "duplicate" bespoke networks.
So there are two world views in play. One says that joining up and/or making efficient use of legacy communications infrastructures would offer a better deal for taxpayers than the government's historic waste of public money on under-specified, poorly managed "big ticket" IT programmes. Under that view, joining up what's there is better than trying to build something new - and waste is bad for the environment.
The other says that competition drives innovation in communications and IT - a view that's increasingly dominant among providers, given that their proprietary networks and platforms may remain the only things that aren't commodities in a digital-first, mobile-first economy.
But why is everything bar the networks commoditising?
Confirmation that Hong Kong-based Hutchison-Whampoa is in talks to buy O2, the British mobile arm of Telefónica, is further evidence of the ongoing consolidation in the UK mobile market.
Hutchison-Whampoa already owns Three and so an approved deal would create the UK's largest mobile group - relegating Vodafone to third place in the domestic market, and BT to second (despite paying more for EE). That alone will force BT to push up its prices across the board, including for broadband and landline customers. Both megadeals need to be approved by regulators.
Core to the providers' argument for reducing the number of major UK providers to three will be their view that standalone mobile services are meaningless in a market in which on-demand TV, movie, music, broadband, cloud and enterprise business services are bundled into contracts in which smartphones, tablets and other devices are among the many endpoints of content consumption.
In short, the network provider market is getting smaller and smaller - and that reduced competition will make it much more expensive for users, including for customers of those companies' other services.
Meanwhile, the problem for consumers - apart from the rising cost of using networks - is that both broadband and mobile providers increasingly regard themselves as media conglomerates that are free to poach and sell their customers' private data at will.
The long-term repercussions of this will be fascinating at best, and unsustainable at worst. En masse, cloud applications, platforms, and services are typically becoming either free or low-cost commodity add-ons to mobile contracts and to walled-garden computing services, such as Apple's or Google's.
Content - including news, games, music, movies, videos, and so on - is also becoming devalued to commodity status in the drive to create an always-on stream to keep users on, and loyal to, a particular network and/or platform. And that is happening even if consumers don't want it, and simply want access to a network in which they are free to make their own choices.
At the same time, the mobile hardware market is becoming increasingly unstable, even as the devices themselves become ubiquitous. As previously explored by the Strategist, Samsung, Nokia, and others, have found that the commodity, high-churn, fashion-dictated status of smartphones has created black holes in their finances - Nokia's stats have recovered since it got out of phones, for example.
Even the tablet market is hitting the buffers, leaving the prime movers and innovators - Apple among them - battling an influx of ultra low-cost devices.
So where does this leave us? A medium-term digital future in which much of what is actually valuable to end-users is junk, bar an ever-more-expensive mobile and broadband infrastructure.
Meanwhile, providers will be forced to become over-reliant on intrusive, data-gathering advertising - unwanted by consumers - to plug the gap between what they want to charge and what consumers are willing to pay. This would represent a gross distortion of the wider economy.
It's already happening
There is evidence from the US that broadband and mobile network providers' collective belief that they are now content providers and media conglomerates - rather than mere network infrastructure proprietors - is already working against consumers' interests.
As this blog from Strategist media partner Diginomica explores, some companies are charging customers more if they only want "vanilla" data services. Accepting content and having their private data passed to advertisers wins them a "discount", despite the fact that the private data is theirs, and not their providers', to sell (an issue explored in our profile of Sir Tim Berners-Lee). Put simply, the consumer loses every which way from network providers' growing arrogance.
Arguably, the problem is similar to the banking system's collective abandonment of common sense in favour of high-risk speculative practices: "normal" retail banking is boring and predictable, just as (it seems) being a mere network provider is also boring and predictable.
Meanwhile in the UK, Ofcom has been slammed by the European Commission for investigating BT's wholesale prices, with the EC's complaint being that the telecoms regulator had failed to consider the amount that BT was paying for the right to cover sports, such as Premiership football. A ludicrous state of affairs for consumers, and for those smaller providers that have no choice but to use BT's networks.
So: back to the government's plans to force both public-sector organisations and private companies to set aside their competitive instincts and collaborate in the national interests, and to pool underused existing resources.
The underlying question is: Is the government attempting to fake a world-class communications network by joining together lots of old ones? A useful analogy here would be the railways, in which case the question becomes: Can you build a high-speed intercity rail network by joining together local commuter lines?
The answer to that question is clearly no, and commuter experience says that not only would the end result be slow and frustrating at the points where old lines join, but that the process of even getting to that stage would be equally slow, frustrating and bureaucratic - and that means yet more expense to taxpayers, not less.
Network providers take note: maximising the use of existing capacity may be an attractive and environmentally sound idea on the surface, but the convergence challenges alone of joining together 13,000 miles or more of ageing public-sector networks will not create the world-class digital environment that the government has in mind.
And as for the party-political obstacles of getting disparate public-sector organisations to collaborate, and the competitive challenges of forcing mobile operators to work together? Forget it.