Analysis of the Market Structure of the UK Mobile Network
Introduction
Various features of a market, as well as the organizations operating in that particular market, define the market structure of each industry. The market structure of the UK mobile network has been subject to numerous changes that are resulting from the technological changes together with the changing consumer needs. Therefore, the major investment decisions in this mobile network industry have been influenced by these two factors. Besides, the UK telephone network is among the world’s best mobile services that offer nationwide 2G, 3G, and 4G services with attractive payment from calls, text messages, and mobile data (Miritello et al., 2013). The UK’s mobile network ranges from cost-conscious customers to the high-end service customers. The dominating mobile networks that control the market structure in the UK are Vodafone, O2, Three, and EE. As such, this paper will provide a critical analysis of the UK’s mobile network market structure by focusing on these four major companies.
The UK’s market structure is composed of eighteen firms with the prominent ones being Vodafone, O2, Three, and EE. These four firms extensively control most of the market practices of the UK’s telephone network. The competition between these companies determines most of the practices in the market ranging from the costs of the mobile data and call rate among other factors. Moreover, these firms lead the market based on the network speed, the type of network services provided, either 3G or 4G, latency, bandwidth, and the availability of the network (Wu, Lambrinos, Przepiorka, and McCann, 2016). Most of these firms offer 3G services with Three being the best service provider of these services. However, it is hard to find the 4G network services in the UK telephone network with EE being the only firm that has stabilized on offering these services where Three is last at offering this service (OpenSignal 2016). Therefore, despite the domination of the telephone market by these four firms, it is apparent that there are slight differences between them or the way they offer their services.
Vertical Integration
Chances of vertical integration in the UK telephone network are hard. The existing firms in this industry depend on the changing customer demands that are in line with the changing technology. Therefore, it becomes apparent for one firm to offer extensively unique services that are under ownership and control of a single firm (Elfenbein, Fisman, and McManus, 2015). For instance, EE network provider has the best 4G network services compared to other service provider companies. However, the availability of the fast network does not imply better network accessibility since these services are not available in most regions implying that other services such as 3G from other service providers are still needed in these regions (Curwen, Curwen, Whalley, and Whalley, 2016). Besides, other service providers have implemented this network service with O2 and Vodafone tying at 60% availability followed by Three, whose availability is 44% (See figure 1 below). Therefore, it is hard for the UK telephone network to be vertically integrated, as there is rampant technological growth.
Figure 1: Predominance of 4G network services among the four companies
Another indicator of the difficulty of the vertical integration in this market is the overall download speed. This measure is important after comparing both 3G and 4G network services for these companies. EE leads in this aspect with its speed being as high as 20 Mbps followed by Three that has 14 Mbps and later Vodafone and O2 (See figure 2 below). This measurement considers several factors such as the availability of the network, connection speed, and latency (Wu, et al. 2016). Thus, this feature reveals the variation of different factors between these service provider companies indicating the difficulty of market integration in this industry.
Figure 2: Overall download speed (Mbps)
Costs
The nature of costs for the UK telephone network is favorable due to the numerous firms offering the network services. This is because of the slight margins of the services offered by the top four companies that reduce the chances of monopoly in this industry. This implies that it is hard for the best performing company to exploit the economies of scale (Elfenbein, Fisman, and McManus, 2015). Nevertheless, each of these companies provides better services to their customers in the quest of improving their performance in the industry resulting in the improved customer service and performance. For instance, Vodafone Company is renowned for providing cheaper phones that target the customers who do not need most advanced communication technology. Three, on the other hand, is one of the best smartphone dealers that have great deals with the smartphone companies such as BlackBerrys and Android phones. This presents one of the most convenient parts of this industry where companies are not trying to exploit the economies of scale but instead, they are improving them by providing better and improved services to their customers.
Product Differentiation
The extent of product differentiation in the UK telephone network is another factor that can be used to assess its market structure. Product differentiation factor evaluates the ability to switch on products, which affects the price elasticity of demand (Elfenbein, Fisman, and McManus, 2015). The telephone network being a technological product implies that most of these companies offer similar services and products to their customers. The differentiation aspect of these services relates to the better performance or the use of the latest technology. For instance, EE is the best service provider offering the best 4G services starting from calls to the internet accessibility. Three offers the best 3G services while Vodafone majors on all range of mobile phones starting from the iPhones to the cheapest and simplest phones (OpenSignal 2016). As such, it becomes easy for the customers to switch between these companies depending on their needs.
In addition, these service providers differentiate themselves from each other in simple aspects that win them, loyal customers. For example, O2 was the first UK network to deal with the Apple’s iPhones as a way of enhancing their quality 3G services. Since then, the company has retained its reputation for offering outstanding internet services for a high-end handset. Consequentially, each of these service providers has established a pool of loyal customers from their simple, unique aspects.
Structure of Buyers
The structure of the buyers is another important aspect used to analyse the market structure of an industry. This factor facilitates the assessment of the customers in this industry and their effect on the services provided by each of the service providers (Baldwin, and Scott, 2013. Technology has become a major factor affecting the way businesses are done. Therefore, the provision of better and fast technological services is key to the improved performance of these network service companies. The users of these services are located everywhere across the UK. With the EE being the best company, it has the best coverage of most of the regions in the UK with the provision of the 4G services with faster connection services (Curwen, et al. 2016). Other network companies such as O2 offer luxurious products such as iPhones while Vodafone offers the cheapest handsets to its customers (Wu, et al., 2016). This is an indication that the diversified customers of the mobile network services and products provide room for diversification of these companies.
Customer Turnover Rate
The turnover rate of the customers is another important feature used to assess the market structure of an industry. Under this factor, it becomes easy to evaluate the way the customers switch along the available companies or suppliers (Baldwin, and Scott, 2013). In the case of the UK telephone network companies, the top four companies are the most used companies. The customer needs one one of the factors determining the customer turnover rate. It is apparent that customers switch to the better services of these companies. For instance, the EE Company promotes this rate with the provision of the 4G services. The 4G network services are associated with a better connection, high download rate, and reduced latency rate (OpenSignal 2016). Consequentially, most of the customers shift to this network as it is convenient and time-saving.
Moreover, the availability of this company in most regions has enabled more customers to shift from other companies to the EE Company (See figure 3). Nevertheless, the other three companies, Vodafone, Three, and O2 have not strengthened their 4G network where their 3G services are close enough limiting their customer turnover rate (Wu, et al. 2016). However, these companies are offering their customer with other alternatives that they can use to facilitate the customer turnover rate based on the availability and the cost of the handsets. With the limited aspects of facilitating customer turnover rate, these four companies have managed to establish a pool of loyal customers all through.
Figure 3: Market share as of June 2015
Pricing Power
The pricing power is another aspect used to facilitate the analysis of the market structure (Baldwin, and Scott, 2013). This factor relates to the cost of using these service providers as well as the power that each of these organization has in controlling the prices. From the four companies, it is evident that the existence of each of them in the industry is influential to the market practices. Therefore, none of the network provider company has the pricing power in the market as each has to consult the operating cost before setting their subsequent prices. This is made possible due to the provision of similar services and products offered by these companies. As such, the market prices of these companies follow the standard market price of their services and products, since the customers can easily switch along these companies as they provide substitute products and services (Wu, et al. 2016). Hence, the pricing power of the network service provider of these companies is reduced and set to standardization; thus promoting the interdependence in the market.
Conclusion
Indeed, it is clear that there is a high mobile phone penetration in the UK because of the increased number of the mobile network organizations. The use of mobile phones in this region is inevitable following the global take over by technological advancement with the use of mobile phones being a key indicator. The variation in the market of the mobile phone in this region has facilitated the establishment of the different organizations that aim at meeting these market demands. The four companies discussed in the report take a substantial part of the UK mobile network market by providing latest mobile phone technologies. The EE has been presented as the best performing organization with the provision of latest 4G network services that is associated with many benefits such as best connection and downloading rates. Other organizations are as well offering these services, and only that they have not reinforced on it. Moreover, the report has revealed that vertical integration in this industry is hard due to the similarity of the products and services offered by these companies. This has also controlled the pricing power of these organizations as well as the customer turnover rate. Therefore, it becomes apparent that improving the services and products through the improved technologies is the way to establish a competitive advantage in this industry.
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