Tuesday 8 September 2009

Unintended Consequences

When Prime Minister Brown allowed Lloyds TSB and HBOS to merge, he merrily waved UK competition law off in order to secure his 'great deal' (ask Lloyds Shareholders what they think of this deal!).

Now though the EU competition commission is taking a good look at the banks and there is little doubt that many of the HBOS assets will have to be sold off. So in the end it may have just generated investment banking and legal fees for third parties.

But there has been a market impact for other industries. Just today there is news that Orange and T-Mobile are likely to try and merge their UK operations. This will mean we go from 4 big mobile telephony providers in the UK down to 3 (not including 3, if you see what I mean).

This would not have been contemplated even a year ago as the competition commission would have ruled it out altogether; now with the recession and the Lloyds precedent, it may well be waved through in some form.

This will no doubt be bad for UK consumers, as less competition means less offers in the market and . Surely if 3 or Virgin Mobile were the buyers then this would be ok, but not to reduce competition by so much.

As far as the Labour Government are concerned though: you reap what you sow.


Simon Fawthrop said...

There's a very good chance this will go through as they appear to be selling it as an infrastructure sharing deal, not a merger. This type of deal has already been approved at the EU level, see T Mobile and 3 deal for 3G sharing.

Furthermore, the MNO's have the Government by the balls by claiming that they can deliver the Government's ludicrous claim of 2mbps broadband USO.

To solve both problems they need greater spectral effeciency and lower costs of production. Some reports I have seen suggest that the cost of production of a gigabyte of mobile data is greater than 10x what they are charging. They can reduce this cost in the future with the next technology, LTE, but there isn't that much spectrum and there is a danger that with 5 MNO's any auction will push the costs up to unacceptable levels.

James Higham said...

Playing fast and loose with the regulations for one's own purposes erodes those regulations in the end.

Budgie said...

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." - Adam Smith. Especially if pushed by Gordon Brown.

Letters From A Tory said...

Yup, there is no longer any justification for halting big mergers once the British government decides to broker deals that suit them. It sounds to me as though the public will lose out, unless a new player enters the market....

Doppelganger said...

The same thought crossed my mind this morning.

And on a separate topic why does there remain an RBS and NatWest distinction years after the take over?

Demetrius said...

So will the new entity now have the status of being "too big to fail"?

JPT said...

This is a very bad thing.
Less competition means dearer bills and less jobs.
They can dress it up as they like.