Mobile Phone Market

T-Mobile and Orange mobile phones have stated that they intend to merge to form a new mobile phone company. The merging of brands will take over 18 months as they decide which brand to promote.

Currently, the market share of the four leading mobile phone providers is

• O2 27%
• Vodafone 25%
• Orange 22%
• T-Mobile 15%
• others – 11%

If they merge the new firm will have 37% of the market and a strong degree of monopoly power.

The firms state the merger will have the following benefits.

• Research and Development.. The larger firm will be in a better position to invest in network coverage, better network quality and better consumer service.
• Economies of Scale. The nature of the mobile phone market is that there are high fixed costs in developing a national network. These fixed costs such as network coverage, and a national chain of shops will be able to be shared amongst the larger firm. If the merger leads to lower average costs for firms, it could lead to lower prices.

Potential Problems of Merger

• New Firm has a very strong position in market. – With over 37% of the market, the new firm may have greater ability to put up prices and charge customers extra (e.g. ringing from abroad).
• It is argued firms with monopoly power may become more inefficient because of the lower incentives to cut costs. However, they will still be facing competition from the big two of Vodafone and O2.

If the merger goes ahead, there will be effectively three big firms in the mobile phone network.

• Is this sufficient competition?
• How extensive are the economies of scale in the mobile phone industry?
• Do consumers want more choice of phone companies or are their advantages to having just three big providers? e.g. sharing same network as friends.

• More on mergers

Competition Commission investigation into mobile phone Charges 2003