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Capex is a more important tool than competitive intensity for bringing down prices and benefitting consumers, HSBC analyst claims.
Consumers in the telecoms space benefit more from a pro-investment climate than from an intense focus on promoting competition, one analyst said this week, and as such European regulators are missing a trick by blocking industry consolidation.
The market does not always appreciate that "investment primarily drives down pricing," Stephen Howard, head of global telecoms, media and technology research at HSBC, told delegates at Connected Britain on Wednesday.
Capital expenditure "is the most powerful tool," Howard said, explaining that capex is an order of magnitude better at driving down prices than competitive intensity, since it drives down the unit cost of providing connectivity for telcos. However, regulators are all about competition.
"The most important driver of returns in the telecom industry is the way that it is regulated," Howard said. And it is probably no coincidence that European regulation is "the toughest on the planet."
Howard broadly supports the U.K.’s approach to regulating the fixed-line market, although admitted to being disappointed that the structural separation of Openreach is still on the table, since it is an issue that could ring alarm bells with investors. Nonetheless, the U.K. is leading the way among its European peers, he noted, echoing comments made on the same stage earlier in the day.
However, he is less optimistic about the state of the country’s mobile sector.
The European Commission’s decision to block the proposed merger between O2 and 3UK was "depressing," Howard said.
"Consolidation would have boosted investment and therefore lowered unit pricing," he said.
The Commission rejected the proposal on the grounds that consumers would have faced higher prices for mobile services, but "I just don’t think the numbers support that contention," he said, referring to the outcome of M&A activity in recent years in Austria, Germany and Ireland.
Howard’s comments did not find favour with all his fellow speakers though.
Nick Delfas, a partner at Redburn, strongly disagreed with his views on the fixed network space, noting that "a separated Openreach would be much better for the country," and suggested that any positive results from mobile consolidation elsewhere in Europe did not really stem from good management by the regulators.
Austria has turned out quite well for consumers, but that is largely down to mistakes made by Deutsche Telekom in allowing virtual players to use its T-Mobile network in the country.
At present, "regulation’s going on the right track," he insisted.
