John Glen MP: Will Ofcom throw away 30 years of free markets?

John Glen is the Member of Parliament for Salisbury. Follow John on Twitter.

There is a good chance that you are reading this on your smartphone or tablet. After all, devices connected to high speed networks are in the pockets and bags of millions of us. There are more connected devices in the UK than there are people*.

The story of the mobile phone, however, is also the story of competitive markets. Choice and competition have driven efficiency and innovation by the mobile phone operators, who have constantly sought to bring the latest products and services to their customers and get ahead of their rivals.  This competition ensures mass take-up by consumers and a healthy self-sustaining system.

The mobile industry generates annual revenues in excess of £15bn and employs approximately 35,000 people in the UK. It is also a powerful economic stimulus – in the UK an estimated £1 spent on internet connectivity (both fixed line and, increasingly, mobile) generates £5 in the wider internet economy. That is just the tip of the iceberg: businesses increasingly rely upon mobile technology to keep in touch with customers and employees so they can react quickly in a competitive economic environment.

Mobile data traffic is growing at a rate in excess of 80% year-on-year, mainly driven by the mass take-up of smartphones, which are already in the hands of over a quarter of British adults and half of the nation’s teenagers*. The mobile network operators now need to deal with the rapid growth in demand that these devices have created.

To create the extra capacity the industry needs, the government will next year auction off new wireless frequencies, which should unlock the next generation of even faster mobile internet services, called ‘4G’, in the UK for the first time. The new 4G networks can reach speeds around 10 times as fast as our current 3G ones. The auction has been much delayed and its timetable could still be disrupted by legal action.

Temptingly however, Everything Everywhere, a joint venture between France Telecom and Deutsche Telekom and the largest UK operator, claims that we don’t have to wait until then. Regardless of the auction, they claim, they can convert their existing two networks into one giant 4G network if Ofcom will allow them. The company recently launched a PR campaign to raise support for their cause.

On the surface of it, this seems to be good for consumers – surely the sooner we get 4G the better? The problem is that in the longer term the implications for the free market in mobile services look dire.

Ofcom is clear that Everything Everywhere would be the only operator capable of providing 4G for at least 15 months – and most likely for considerably longer than this. In that time, they would have a monopoly on new 4G devices, and free reign to lock customers in to contracts from which they could take two years to emerge.

In other words, the largest player would grab even more market power, leaving the others scrambling for spectrum to catch up – if the auction even happens. Three decades of strong competition could be undermined in pursuit of a quick win.

To me, such a step would be short-termist and futile. Instead, the best way to serve consumers and businesses in the UK would be to hold a free and fair auction as soon as possible creating the same competitive environment for 4G that has benefited consumers in the past.

In a world of tough choices, that seems like a surprisingly easy one. The taxpayer wins, the consumer wins and the economy wins. What could be a more compelling case than that?

 *Ofcom Communications Market Report 2011 (August 2011) – active mobile connections per 100 population are 130.1, Over a quarter of adults (27 per cent) and almost half of teenagers (47 per cent) now own a smartphone.