OXFORD, United Kingdom-The United Kingdom likes to portray itself as a pioneer in cellular. Certainly it was early on the scene, with two analog TACS (Total Access Communications System) networks entering commercial service in January 1985.
In mid-1992, the United Kingdom was at the front of the field again, taking part in the first wave of GSM 900 MHz network rollouts. And in September 1993 the world’s first 1800 MHz PCN (Personal Communications Network) system opened in the country, an appropriate venue as the British can fairly claim to be the inventors of PCN.
Today there are more than 8 million cellular subscribers in the United Kingdom. The country’s four cellular network operators-Cellnet, One 2 One, Orange plc and Vodafone-are highly respected within the industry. The U.K. Department of Trade and Industry currently is vying with the Telecommunications Administration Centre of Finland to become the first regulatory authority to issue Universal Mobile Telecommunications Services (UMTS) licenses. It sounds like a scenario with all the hallmarks of a pioneering success story.
But from another angle, the United Kingdom could be said to have fallen behind in the cellular stakes. Compared with Italy, a country with the same population as the United Kingdom, the British performance seems laggardly. Telecom Italia Mobile, one of the two cellular operators in Italy, didn’t launch its first cellular network until 1990, yet already has more subscribers than all of the U.K. operators put together.
And by the yardstick of penetration rates, the cellular industry’s accepted virility symbol, the United Kingdom appears to be languishing. While the Nordic nations are seeing penetration rates breaking through the 50-percent barrier and Italy is at 21 percent and rising fast, Britain can only admit to 15 percent.
Neither of these perspectives are true, of course. The United Kingdom certainly is not a poor performer in the cellular hierarchy. But it cannot lay claim to being the pioneer of the industry either. Despite a promising start, the current verdict on the performance of the U.K. cellular industry has to be moderate to good.
Inconsistent progression
U.K. cellular seems to progress in fits and starts. The fierce and constant competitive pressure that is almost tangible in many European countries is often absent in the United Kingdom. The U.K. market is characterized by periods of relative calm punctuated by bursts of intense activity when operators react to an initiative from one of their competitors. Or from the regulator. Competition in cellular appears to be more regulator-driven than market-driven.
This could be a legacy of the early days of cellular. Cellular was born when the United Kingdom was most definitely a pioneer in the liberalization of the telecommunications environment, just after competition had been introduced into the fixed networks to break British Telecommunication plc’s monopoly. But the initial approach to liberalization was a cautious one, creating limited competition through a duopoly in both the fixed and cellular networks.
In cellular, it became a rather cozy duopoly. Both Cellnet and Vodafone were doing good business with their analog networks, service offerings were very similar and the tariffs charged by the two operators were almost identical. Both operators followed the route of introducing low-cost/low-usage packages aimed at the consumer market, with reduced connection and monthly subscription charges, but high call tariffs.
The regulator ended the duopoly abruptly at the start of 1990. Unbridled competition was the new philosophy, taking full advantage of newly available mobile technologies. All of a sudden, 13 new mobile licenses were issued: four for telepoint (public cordless services), four for mobile data, three for PCN and two for GSM (Global System for Mobile communications). The two GSM licenses were issued to Cellnet and Vodafone.
The result was hardly a grand success overall. The telepoint services all launched and all failed. Mobile data never really happened. Many members of the winning PCN consortia took fright when it emerged that the PCN concept was ultimately little different to GSM, with higher capacity capability but concomitant higher costs to provide coverage. A major shakeout resulted in just two redefined PCN consortia: Mercury Personal Communications, a joint venture between Cable & Wireless plc and U S West Inc., later renamed One 2 One; and Hutchison Telecom, subsequently christened Orange PCS.
Market positioning
But introducing two GSM and two PCN networks certainly shook up the cellular market. All of a sudden, tariffs tumbled and discount schemes made their appearance. The battle to gain and keep subscribers began in earnest. One 2 One threw a radical concept into the market. Its consumer tariffs offered free off-peak local calls, the precursor to bundled tariff packages in which free minutes are provided in exchange for higher monthly subscription fees. At launch, One 2 One promised free off-peak local calls for life. This was a permanent offer, not a gimmick. The offer has since been quietly phased out.
But bundling of free calls into tariff packages remains a characteristic of One 2 One’s service offering. The result is that One 2 One subscribers average a remarkable 1,000 call minutes a quarter compared with only about 250 call minutes per quarter for subscribers to the other three network operators. The average traffic for fixed-line subscribers in the United Kingdom is 1,200 call minutes per quarter.
Today, the average revenue per unit (ARPU) for Cellnet, One 2 One and Orange is similar. Vodafone touts a user ARPU more than 30 percent higher than its competitors, a reflection of the company’s unremitting focus on margin per subscriber rather than on subscriber numbers.
During the past five years, the major differentiator between the GSM and PCN networks has been coverage. Orange and One 2 One have suffered most, being burdened with the expense of rolling out 1800 MHz networks nationwide. Cellnet and Vodafone have had the advantage of 900 MHz technology combined with the infrastructure (and installed customer base) of their analog networks. Cellnet and Vodafone also have been allocated part of the 1800 MHz spectrum from the vacant PCN license to develop in-building dual-band applications.
It’s not surprising, therefore, that although Orange and One 2 One have been more innovative and aggressive in their tariffing, advertising and branding, they still are very much the also rans in terms of market share. The two operators together have only 25 percent of the subscribers and 20 percent of the revenue in the cellular market. Their position is improving, but only slowly.
In all fairness
All that may be about to change. A burst of activity has just hit the market. Activity focused on competitive and innovative tariffing packages. Activity which, as usual, has been triggered by regulatory action.
Despite fierce opposition from Cellnet and Vodafone, number portability among mobile operators is being introduced into the United Kingdom next year. Nobody really expects the effects to be as dramatic as in the fixed environment, but nobody can be really certain. The Byzantine structure of the channels to market in the country, characterized by handset subsidies and high levels of churn, makes the effects of number portability totally unpredictable.
But the prospect already has had an effect. All operators have come out with new approaches to tariffing designed to encourage customer loyalty and poach customers from their competitors.
The common theme is the concept of fairness. It’s a good concept. The plethora of tariffing packages that have grown up over the years has resulted in an intensely confusing range of choices. Few people are convinced they are on the appropriate tariff. Even getting sensible advice is almost
impossible.
Vodafone is now promoting tariffing schemes matched to individual usage pa
tterns, offering rates as low as 2 pence per minute. One 2 One is returning to its roots and offering free national calls on special tariffs. Cellnet has launched its First in Fairness program in which it analyzes usage patterns and automatically transfers subscribers to the tariff that results in the lowest total monthly charge.
Orange reckons it has scooped them all. Its Complete Value Guarantee offers to replicate any airtime tariff from any other digital network. If any customers believe that a competitor’s tariff better suits their needs, Orange will match that tariff on its billing system, item for item.
