PEST analysis of uk mobile network industry

3.1 POLITICAL

It is plausible to say that the mobile network operators industry is a highly competitive and therefore, regulated industry. MNOs in the UK are in general governed by regulations which are in the form of industry-specific laws and regulations affecting telecommunications services. MNOs are also subject to anti-trust/competition laws which affect all industries.  The important directives, decisions and regulations by the EU as well as the UK communications regulator Ofcom are discussed below.

The European Union (EU) Telecoms Regulatory Framework; the regulatory framework which was adopted in 2002 and has been applied by all member states of the EU consists of directives developed with an aim of ensuring and improving competition within the industry, protecting consumers. The framework was further reviewed in 2007

3.11 EU Law on Roaming Charges; Charges for using mobile phone services outside the location where the service was originally registered are an important source of income for network operators. Many mobile phone users find this a convenient service as they can use their already existing network provider when abroad, but often come back to receive higher than expected phone bills. The charges for the roaming service as at 2007 were worth €8.5bn a year to the European telecoms industry7. In 2006, the telecoms commissioner called for legislation on roaming arguing that consumers paid an unjustifiable fees for using their mobile phone service abroad. In 2007, members of the EU agreed to force a slash on roaming charges and the legislation was backed by consumer advocates and campaigners. The law came into force in June 2007. The law required that users pay no more than €0.49 per minute for placing an outgoing call while in another European country and €0.24 a minute for receiving calls. The legislation also required that wholesale charges – charge imposed by one operator on another for allowing calls to be made through its network – be capped at €0.30 per minute during the first year after enactment of the EU law. Charges were to be capped further in the second and third years following the legislation before being scrapped8.

Further proposed legislation in March 2009 called for billing for voice calls to be made by the second, for a further cap on voice calls from €0.46 to €0.25 by July 2011, for cross-border text messages to cost no more that €0.11 and a cap of €1 for wholesale downloading of one megabyte of data7. Under these legislations since 2007, mobile operators have seen a slash in their estimated €8.5bn income from the roaming market.  It is thought by the operators’ trade body that the law is anti-competitive. Protecting the consumers - mobile phone users - may continue to be an issue of concern for the future of the industry as more regulations may be effected.

3.12 Spectrum Liberalisation; proposals by the office of communications (Ofcom) on the management/allocation of spectrum, has been a major issue of concern for the mobile network operators. Spectrum is a scarce resource important for wireless technology and in May 2000, O2, Vodafone, T-mobile and Orange paid over £22bn between them for spectrum licences to operate the 3G third-generation mobile phone services in the UK, through an auction9. These licenses were granted by regulators to the operators, stating frequency bands, services and technologies in a command and control manner10. However, a new approach relating to spectrum management has been introduced. On the 29th of May 2006, the European Commission’s Radio Spectrum Committee published proposals for spectrum liberalisation – an approach to spectrum management that puts an end to technological and service restriction on spectrum usage10. Ofcom believe that through spectrum liberalisation, mobile operators would be able to launch new technologies and services, competition would be encouraged and it will give opportunity for new entrants into the highly competitive industry11. Ofcom proposed to make available to other operators, some of the 900MHz radio spectrum currently used by Vodafone and O2 and the 1800MHz used by the four providers listed above11. Having invested such large amount of capital for the license, liberalisation of spectrum may have a detrimental effect on the ability of the network operators to recover their investments12. Also, mobile virtual network operators such as Tesco who provide its services by utilizing spare spectrum capacity on O2’s network may suffer consequences as the amount of spectrum available to them will be reduced13.

3.13 Termination Rates; network providers charge each other a fee known as the termination charge for receiving  a phone call on its network. This charge is pushed on to the consumer who eventually pays. In the past, these rates have been high and variable amongst different MNOs as well as a high source of revenue for MNOs. MNOs attributed the high and variable rates to factors such as costs for infrastructure. The European Commission (EC) however expressed concerns about what it considered unjustifiable rates and therefore called for charges to be slashed14. Ofcom on the 6th of April 2009 directed that rates be reduced by 21%, and a further reduction to follow in 2010 with an aim to equalise all rates15.

3.14 Base Stations & Human Health; member of the general public as well as interest groups such as Powerwatch and Friends of the Earth Scotland have shown concern about impact of radiations from base stations, transmitters and mobile phones on human health. According to the mobile operations association (MOA), all mobile phone base stations in use in the UK, comply with the international health and safety public exposure guidelines recommended by the International Commission on Non-Ionizing Radiation Protection. It also states that over 30 scientific researches has been conducted and results have shown no negative correlation between mobile phone base stations which comply with the international health and safety guidelines and human health16,17.

3.2 ECONOMIC

3.21 Impact of the Credit Crunch; the personal disposable income of consumers is to a large extent determined by the availability of credit and the economic condition.  With the current economic and financial situation which has resulted in a general contraction of consumers’ spending ability, several industries have watched their revenues plummet. Businesses in general are experiencing difficulty in obtaining loans from banks for major investments and expansions due to the unavailability of credit and tighter credit conditions. Analysis by Ovum (a global advisory and reporting firm) has revealed that the mobile network operators’ revenue has not been impinged on by the credit crunch. They go on to report that overall, MNOs have seen a steady growth in revenues18. O2 reported a 10% growth in revenues in their 2008 end of year financial statement despite the testing financial times19. Also, a survey carried out by Mintel showed that although consumers were pessimistic about the condition of the economy, a large percentage was not willing to cut costs on their mobile phone usage. Their results disclosed that only 12% of their research respondents were looking to switch network for cheaper deals20. Subsequent analysis by Ovum in December 2008 showed that network operators may actually begin to feel the impact of the financial crises on their revenue.

Also, with interest rates which have taken a nose-dive- from 5.25% in February 2008 to 0.5% at March 2009 after several cuts by the Bank of England, and the quantitative easing policy that has been implemented, it is expected that consumers will have more access to credit, and spending will be encouraged. O2 reported that its revenues were up by 7% in the first three months of 200921.

3.3 SOCIO-CULTURAL

3.31 INCREASING NEED FOR COMMUNICATION & INSTANT INFORMATION; Times have changed. About 25 years ago in the UK, everyone survived without owning and using a mobile phone. However, in this present time, mobile phones have without a doubt formed a huge part of our lives as the need for communication is increases. Mobile phones serve many great purposes to users; necessary contacts can easily and promptly be accessed in an emergency, business users are able to carry out their businesses more swiftly amongst other uses. Consumers have stated that they own and value their mobile phones for both functional reasons such as convenience, personal safety, security and business and also less practical reasons such as fashion and style22.

As well as increasing need for communication, an ongoing trend is increasing impatience to receive required information. The UK has become a population constantly on the go and in today’s fast moving world more users require information and hope to receive it in very minimal time without much delay23. This is reflected in the innovation and use of the 3G services now offered to users by their network operators. Orange supplied figures which showed that mobile data downloads has increased by 108% in the last three months and their 3G customer base now stands at 3.8 million users24.  With 3G, users have direct access to high speed internet on the go, the ability to retrieve emails, and other required information. This trend does not favour fixed-line services and remains an advantage for network operators.

3.32 DIY Broadband; in the UK, more and more people have access to high speed net connections. This media age trend has resulted in consumers having the ability to do things themselves; surf the web, compare prices between various network providers and find the most suitable deals. Also, consumers are actively sharing experiences, preferences, pros and cons of different network providers and deals on price comparison and consumer rating sites such as uswitch. With access to faster internet and availability of such useful information, consumers are more aware of what they want and are able compare prices to find the best deals. Consequently, this has ensued in increased competition between providers as they seek to provide the best deal in order to retain customers and attract new ones. This trend has also adversely affected the revenue of providers who are unable to keep up with the high level of competition25.

Figure 2: Broadband Penetration in the UK from 2004-2008

Source; Mintel Reports, Mobile Phones and Network Providers - UK - November 2008.

3.34 AGE DISTRIBUTION; in the UK there are now more people of pensionable age – over 60- than people under the age of 16. This consumer group-elderly has been forecasted to be the fastest growing population segment in the next five years as the UK is moves towards an ageing population26. The elderly typically face difficulties with the use of mobile phones such as reading from the small phone screens, incompatibility with hearing aids and increasing complex technology. Although the current over 65s have grown with technology, they generally have low spending ability and as such the ageing population trend may not be favourable to the industry. Nonetheless, this negativity is likely to be offset by the generally expanding UK population, and the increasing population of the 15-24 and 25-34 age groups27. These categories of consumers are more technology-savvy and typically opt for more stylish handsets packed with functionality. These segments therefore present a strategic target group for network operators.

3.35 A Greener Society;, preventing climate change and saving the environment is a trend affecting most industries around the world but has been reported to be a major issue of concern for the telecoms industry for 200928. Several initiatives implemented by Ofcom aimed at reducing the industry’s carbon dioxide emissions include; reducing power consumed by Information Systems, driving down building energy consumption, reducing business travel and increasing use of conferencing technology, further reducing paper consumption and further reducing the volume of waste sent to landfill by encouraging more recycling. Implementing these initiatives is beneficial to the network operators not only because they are doing their bit to save the planet, but because it conveys positive messages about the brand, boosts the brand perception as well as provides a differential advantage from competitors28.

Also, with increasing mobile phone users and the need for network operators to improve coverage, more and more masts have being erected around the country. Currently, there are 51 300 base station sites which may rise to 52 500 by the end of 200929. These masts typically consumer a lot of energy and impact negatively on the environment. Subsequently, this has triggered concern by the public and environmental activists. Operators have made efforts to reduce high energy consumption by developing base stations that utilize lower energy levels30.

3.4 TECHNOLOGICAL

3.41 ADVENT OF 3G; Introduced in the UK in March 2003, the 3rd generation innovation has been one of the most important developments in the world of network operators having significant impacts on revenues. 3G technology allows users to have access to multimedia services such as broadband, packet-based transmission of text, multimedia data - such as audio, video and digitized voice - at a high data rate. Many networks have seen significant growth in revenue from non-voice services as the market for voice services becomes saturated and more users adopt the use of 3G services. Vodafone reported in its 2008 annual report that its revenue was up 2% with data revenue up 35.7% 31. Between 2003 and 2008, revenues from data services had increased from £0.2 billion to £1.5bn. In 2008, broadband was one of the fastest growing services for operators, and more than 15% of revenues were generated from non-voice services32. As the revenues from voice calls are declining, operators are now focusing on providing high standard, satisfactory non voice services such as high speed internet. Nonetheless, if the demand for non-voice services continues to soar, operators could face a challenge in terms of management of traffic loads and severe stress on the networks.

HSDPA (high-speed downlink packet access) which is an enhanced version of 3G has been introduced to the market. This version of 3G services allows users to downloads at speed of up to 7.2Mbit which is faster that most home broadband and is particularly attractive to business customers.

3.42 CONVERGENCE; investments in research and development in the industry convergence fundamentally aims at bringing together two or more services that previously operated on separate devices to provide more benefits, enhanced features and value for the end users. It is combining voice service with television and radio as well as other internet services in one handset. This technological innovation of converging technology has become the key to survival in the global telecoms industry requiring major investments from operators to keep up with the competition of providing good value and high speed wireless services33.

Also, with the availability of tools that can track consumers’ usage of converged products, network operators are able to study consumer behaviour and identify revenue opportunities relating to those services utilized most34.

Furthermore, the chipsets required for multiple wireless technology has been predicted to drop in price from $2 to $1 in 2009. Operators will benefit from the price drop as they would be able to integrate wireless technology into a wide range of devices34.

3.43 DISINTERMEDIATION; The innovation of 3G and convergence has brought about the emergence of third party content providers, typically frowned upon by network operators34. These third party companies such as application stores by-pass the network operators to provide various applications to phone users. It has been forecasted that the number of downloads sourced from third party companies is set to increase to 10 billion in 2009. Network operators do not earn any direct revenue from downloading applications from third party companies and the subject of intermediation will continue to cause concern34. On the other hand this has presented an opportunity for operators as they can launch their own application store. Vodafone revealed plans in May 2009 to launch its own application store.

3.5 SUMMARY OF PEST ANALYSIS

In terms of the political analysis, a key finding is that the MNO industry is extremely regulated in order to ensure competition, avoid market monopoly and protect consumers. Despite the several already enforced laws such as mobile termination rates cuts and slashed roaming charges which have adversely affected revenues, the MNO industry is likely to face further regulations from the EU and other regulatory bodies in the future.

In relation to the current economic climate, it seems to me that despite the fact that operators may see a decline in their revenues; the industry will prevail over falling personal disposable income, reduced spending power and the like, for the one reason that mobile phones have become a thing of necessity. Also, with persistent trends such as the need for communication, mobile phones remain indispensable for majority of the population and the industry may continue to thrive in face of the challenging economical climate.

Technological innovation will continue to be the driving force of the industry. For this reason, I recommend that operators should pay more attention to investments in research and development as it is fundamental to the innovation of new technologies.

REFERENCES

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