Would T-Mobile UK Merger Harm Competition?

Current discussions about T-Mobile (News - Alert) UK, and the possibility it will merge with another carrier, illustrate some key issues about the nature of competition in the mobile business. Most people would assume, rightly, that multiple providers in a single market lead to greater competition and therefore enhanced consumer welfare.


But people disagree about the minimum number of contestants required to create meaningful competition. Lots of people might argue that two dominant competitors in a communications market is insufficient.

The U.K. market might suggest that four is too many. T-Mobile UK is the fourth-ranking mobile operator. Its average monthly revenue per user is £38.60, while its competitors are at £50 to £57 per customer, per month. But T-Mobile UK has nearly as many subs (16 million) as each of its three main competitors.

The issue is the nature of sustainable competition in a capital-intensive business. On that score, some economists argue that mobility markets are workably competitive, if not "perfectly" competitive.

"Industrial economics teaches us that in industries with large fixed and sunk costs relative to retail expenditures, only a relatively few number of firms will be able to survive and continue to offer service," says George Ford, Phoenix Center for Advanced Legal & Economic Public Policy Studies.

"In my professional opinion, even in a 'best case scenario,' only a handful of firms, say three or five, will be able to provide mobile services, including mobile broadband, to consumers," Ford argues. "A three to five firm equilibrium is outstanding in telecommunications."

The U.S. mobile industry now has five facilities-based competitors. "In industries such as wireless communications there is a tradeoff between intense competition and the number of firms. The more intense is the competition, whether naturally occurring or induced by regulation, the fewer the number of firms that can survive," says Ford.

Ironically, the more intense the competition, the fewer the number of possible long-term competitors can exist. The precise number of competitors would seem to fall somewhere between two and five. That being the case, T-Mobile UK merging with another provider should not prove detrimental for U.K. subscribers.