by Tony Westbrook

BT O2 merger will resurface the CIO convergence debate

Dec 08, 20145 mins
MobileSmall and Medium BusinessTelecommunications Industry

It is with a heavy heart than any IT observer considers writing a story about telecoms convergence.

Convergence has been a recurrent topic of IT writers for 20 years in one form or another. We’ve heard how mobile would render traditional copper infrastructure redundant, then how telecoms  would swallow up newer technology sectors requiring global connectivity, and finally how those same tech companies would turn telecoms companies in commodity service providers, simply offering the backbone for everyone else to operate across.

BT’s clear and public intent to acquire one of the UK’s major mobile network companies wakes old ghosts once more. And yet again convergence is the buzzword of choice. According to analysts, O2 looks the more likely target of BT’s attentions and the company has confirmed that talks are underway with O2 and one other company –  the recently merged Orange T-Mobile EE network being the most likely contender. We should know more by the end of the year…

Convergence implies a loss of choice for customers. Yet all of the promised change that has happened at least once already in previous decades has resulted in more choice.  Through it all, BT, who started off all that time ago as the biggest operator and former monopoly, has had to ride some stormy seas. It is back in safe harbour now.

Starting in 1995 BT founded mobile operator Cellnet and later started a joint venture with Securicor using this brand. Having spun this off as a separate business, it was relaunched as 02 in 2002.  This coincided with lean years for BT, and by the time they got involved in the utterly insane bidding for 3G licenses (which raised an astonishing £22.5 billion for the UK government at the turn of the millenium) the company was starting to look cash poor for the investments it needed to make in creaking infrastructure.

Nine years ago BT finally agreed a takeover of its entire O2 operation by Spanish Telecoms company Telefonica, and so lost its hold on mobile operations in the UK.

Now it’s ready for a new voyage. The indication that BT might be ready for a second go at mobile became apparent about a year ago when firstly the company won some 4G spectrum in the Ofcom 4G auction (the 2.6GHz band costing a trivial £186.5 million). BT then signed a new agreement with mobile network operator EE to use its network to provide mobile services.

At the time this activity was seen as a way for BT to be able to offer the consumer what are called ‘quad play’ bundles. These are a rolled up consumer deal offering home phone, mobile. TV and broadband — a way of adding value while cutting costs.  Yet puzzlingly (at the time) the mobile facility bought from EE was then only offered as a business service.

BThas also been working on technology called Mobile Infrastructure Infill Solution (MIIS) to allow users to switch seamlessly 4G mobile data in the spectrum BT now owns delivered locally via micro cells, dropping back to the EE network as a high-speed data backup of last resort.

However a nifty fix like MIIS was never likely to satiate BT’s new appetite for mobile. According to a report in the Telegraph, it has now confirmed that it is in talks with O2 as well as having been approached by a second network operator, believed to be EE.

But what does such a deal mean for business customers of telecom services?

That mostly depends of whether you see convergence as a driver of investment in infrastructure, or the removal of competitive price pressure. As it stands, the landscape wouldn’t look too different after a BT acquisition: There would still be four major network operators in the UK including Vodaphone and Three.

But what if Three, which is also the smallest of those networks in customer terms, wanted to compete head-to-head with a newly invigorated BT offering?  Might it then swallow one the remaining operators whole? Entirely possible,  but if that happened we would see a significant loss of choice, but probably not of competition.

Our best guess is that BT’s return to mobile is good news as it accelerates network development. If that seems of more relevance for consumer ‘last mile’ connection than business infrastructure, bear in mind that if BT is able to accelerate the roll out of UK Superfast Broadband to more remote locations through new technologies like MIIS, there will be a payoff for all UK businesses. And as long as there are at least two strong and equal competitors playing against each other, the choices for business buyer of telecom products and services should remain attractive.

History suggests that although convergence maybe the buzzword once again, we don’t need to expect any extreme contraction of choice anytime soon. We promise to review the situation again in 2035…