Game of Phones: Winter is Coming

As the UK’s mobile and broadband markets witness an array of mergers and acquisitions, Graham Lovelace, director of Lovelace Consulting, looks at how the battle for customers and the fight over pay-TV is redrawing the telecommunications map.

A wave of consolidation is sweeping through the UK’s mobile and broadband communications industries. It’s a ‘Game of Phones’ and battle for broadband that’s redrawing the UK telecommunications map. The stakes are high, and the plot is intense.

Just as intense as Game of Thrones, the multiple award-winning fantasy drama based on George R R Martin’s novels, brilliantly adapted for TV by HBO. If you’re not watching #GoT, you’re missing out – it’s TV at its ‘golden age’ best, following the fortunes of noble houses fighting for control of the Seven Kingdoms. Supremacy means ownership of the Iron Throne.

Game of Phones is an epic struggle to win and retain customers, as well as owning or having favourable access to mobile and broadband network infrastructures. Supremacy means success for service operators, as well as the success of United Kingdom plc.

According to Boston Consulting Group our internet economy makes up 10% of gross domestic product – a larger percentage of GDP than any other G-20 nation. That’s forecast to rise to 12.4% in 2016, more than twice the G-20 average of 5.3%.

Supremacy also has a direct impact on us as consumers: according to Ofcom, 93% of adults own and use a mobile phone; 16% live in homes without a landline. Four adults in five (82%) have home internet connections, with 77% having broadband (fixed or mobile).

Superfast connections – those delivering 30Mbps and above – are soaring: 32% of fixed broadband connections are already superfast, up from 24% in 2013. We’re increasingly reliant on mobile and broadband networks for our communications (voice, email, messages, social interactions), shopping, and access to information and entertainment.

Online video powering faster connections

Entertainment in the form of online video already accounts for 64% of global consumer internet traffic. Cisco reckons that will rise to 80% by 2019. Streaming and downloading HD movies, TV shows and video games requires faster connections, particularly when those connections are being used to access several data-hungry media files at the same time.

Netflix is streaming House of Cards season two in 4K to compatible 4K TVs and recommends a broadband connection of 25Mbps or higher. A typical HD movie takes 1 hour 12 minutes to download with a 5Mbps connection. That falls to half an hour at 20Mbps, and under five minutes with Virgin Media’s 152Mbps superfast broadband.

Sky and TalkTalk are partnering in a city-wide fibre optic network in York that later this year will offer 1Gbps connections: a typical HD movie will take seven seconds to download. 5G mobile services could be delivering between 10 Gbps and 50 Gbps, compared with the average 4G download speed of 15 Mbps.

Redrawing the map

Warring families in Game of Thrones plot to destroy rivals by seizing their land, taking over their castles, controlling their armies. Their principal weapon: surprise. Game of Phones players compete by acquiring licences, building networks, operating services, growing revenues, managing customer service, constantly innovating – and staying on the right side of the regulator.

Principal weapon: access to capital, and lots of it – mergers and acquisitions are a constant feature in this story. We’re about to see a lot more as a string of mega deals redraws the map.

The Land of Mobile currently has four big players, or houses as they’d be called in Game of Thrones: O2, EE, Vodafone and Three. This is set to become three players as Three acquires O2 in a £10.3 billion deal creating the UK’s biggest mobile operator with 32.9 million subscribers, or 41% of the mobile market. The deal is subject to regulatory approval.

BT is acquiring EE in a cash and shares deal worth £12.5 billion. Under the deal Deutsche Telekom will own 12% of BT. There’s speculation that Deutsche Telekom will look to fully acquire BT, though that can’t happen until 2019 under the terms of the EE deal, which is also subject to regulatory approval.

Vodafone is returning to home broadband, and launching a pay-TV service later this year.

The Land of Broadband also has four big players: BT, Virgin Media, TalkTalk and Sky. BT is on the way to offering a quad-play: a bundle of TV, broadband, mobile and home phone: it launched a 4G SIM-only offering in March, using EE as its mobile virtual network operator (MVNO) partner.

Handset deals and full mobile services will follow once the EE deal has been completed. Virgin Media and TalkTalk are already quad-players; Sky will be next year when it launches a mobile phone service using Three-O2’s network.

Beyond these lands lies the Sea of Whispers – turbulent waters that could further change the order of things. Vodafone has long been rumoured to be interested in a takeover of Liberty Global, owner of Virgin Media.

Last month Liberty Global chairman John Malone said a tie-up would be a “great fit”; last week the companies confirmed they were in early-stage discussions over an exchange of assets.

BT faces a break-up threat following lobbying from rivals TalkTalk and Sky, and the claim that owning BT Openreach stifles competition. BT says there’s no case to split off Openreach; Ofcom’s telecommunications review – the first for a decade – will decide.

Meanwhile Sky has reportedly appointed investment bank Lazard to advise on options in the UK’s consolidating telecoms sector.

The old quads and the new

In 2016 there will be five quad-play providers: Virgin Media, Sky, BT, TalkTalk and Vodafone. Three-O2 is likely to at least add fixed telephony and broadband to its offer in order to remain competitive.

By adding TV it could become the UK’s sixth quad – so every leading mobile and broadband player will be a quad player. The Land of Mobile will have collided and combined with the Land of Broadband; consumers will be poring over price comparison websites working out which quad deserves their quids.

Consumers should benefit from discounted services within the bundle and the ability to access programming, seamlessly, across multiple screens. Operators benefit from the convergence of fixed and mobile services, allowing them to offload calls from mobile networks to fixed broadband and home wi-fi, and offer additional services built on home networks, such as home security.

Winter is coming

Game of Thrones is set at the end of a decade-long summer. Characters constantly warn each other that “winter is coming”, implying the end of the world is nigh. Game of Phones has recently had an apocalyptic warning.

Professor Andrew Ellis of Aston University last month said the Internet might need to be rationed since it was using up too much energy – already the equivalent to the output of three nuclear power stations – with demand doubling every four years.

To make matters worse: the fibre optic cables that are being laid right now could fill to full capacity by the end of the decade. Laying extra cables might sound like the answer, but all that does is use up more power.

That sounds like the beginning of the end of our decade-long internet summer; an always on, always available Internet which costs the same whether we’re surfing web pages or watching House of Cards, or eventually, Game of Thrones, online in 4K. Someone, somewhere, might have to enforce internet breaks.

Imagine that. No Email. No Facebook. No Twitter. No WhatsApp.

Just a quill pen and a raven.

Graham Lovelace is director of Lovelace Consulting, the convergent media specialist, and co-founder of The Infographics Agency