? Weaker U.K. economy unlikely to impact communications spending
? Focus on speed gradually decreasing
? 5G will not solve network coverage challenges
A weaker economic climate in the United Kingdom has taken its toll on the earnings of a number of major operators, such as British Telecom. Amid sweeping regulatory change and the looming impact of Brexit, S&P Global Market Intelligence spoke with William Webb, former director at British regulator Ofcom and these days CEO of Weightless SIG, a nonprofit standards body focused on internet-of-things connectivity.
S&P Global Market Intelligence: In the aftermath of some of last week's earnings announcements, is the weaker U.K. economic outlook a convenient excuse for under-performing mobile operators?
William Webb, former Ofcom director and CEO of Weightless SIG
William Webb: I do not think the economy has changed much really. It seems to me that people always prioritize spending on communications above pretty much everything else. A number of surveys suggest that people will put their internet connectivity first above chocolate, showers and all sorts of other things. I therefore find it hard to believe that a change in the economy is going to materially change total spend on mobile communication. I can't image that it would have significant impact on mobile operators' revenue. I would think bigger forces are at play in the competitive environment, for instance.
Does this also apply to enterprise and business contracts?
That is slightly tougher to determine. It is possible that businesses feeling the pinch might cut back on contracts. Again, it is one of the last things I think they would cut but it is possible they might look for alternative suppliers to boost savings.
What is the immediate and long-term impact of the European Union's recent decision to end roaming charges?
I think a lot of operators had already been gradually reducing fees. For example, Three had already pretty much cut roaming fees to zero and the roaming fees within Europe were not as high as they were elsewhere. So, overall, there would be limited impact. A lot of people were finding ways around the roaming charges anyway through Wi-Fi and Wi-Fi calling. There will be some reduction in income for operators but I do not expect it will be a transformative reduction.
Is 4G capacity growing on the networks or are operators still too reliant on Wi-Fi to make up for the shortfall?
Capacity is growing across the networks. That is predominantly because operators are progressively re-farming their 2G and 3G spectrum to 4G, which is about two to three times the spectrum efficiency of 3G. But as network capacity grows, so does demand. What I am seeing is that the growth in capacity is just about keeping up with growth in demand, which is typically around 50%-70% a year, but that is based on the current amount of off-loading. By a rule of thumb, I would say about 60%-80% of mobile data on the phone is actually transferred by the home, office. If that were to reduce, then the capacity increase on the mobile phone networks would be enormous. If you halved the amount going over Wi-Fi, you'd end up having to triple the capacity of the mobile phone networks, which just is not feasible at the moment. So operators are just about managing to grow capacity in line with the increase in demand, as long as Wi-Fi off-load stays at current levels or goes up. But they could not possibly cope with any reduction in off-load.
At the same time, would you agree the broadband market is slowing?
It does look like the rate of increase in demand for data is slowing. But there is some year-over-year growth and it is still early days to be looking at a case of entirely flat growth. I also think the focus on speed is gradually decreasing. For most people, the networks are perceived to be fast enough but they are just not available everywhere. There is still a lot of frustration with the coverage of mobile networks and the fact that you cannot get a good connection wherever you go. Unfortunately, 5G will not solve this issue.
In that regard, is BT's recent proposal to supply the U.K. with universal broadband a good deal for the company?
From BT's point of view, my guess is that by and large any further roll-out is probably uneconomic. They probably already deliver to the homes where they expect to make money. This new announcement, I would expect is one where they anticipate they might lose money on the roll-out. I think they're doing it because it brings broader benefits. It buys them political kudos which means politicians are less inclined to give them a hard time over other things. It’s also some good publicity for them among the general population.