European Mobile Operators Ponder the Possibility of Consolidating

As revenue from voice, text and data shrink, European mobile operators may soon consolidate to save money and invest toward developing 4G systems.

A recent New York Times article says O2 UK, a British communications company, will merge networks with Vodafone; O2's German unit may also merge with a Dutch company called E-Plus.

Daniel Thomas of The Financial Times explains that as "corporate predators have ramped up pressure in the industry" to figure out how to make more profit and offload costs. Thomas's is an apt metaphor, as it illustrates the gang-mentality of the situation, and a good explanation of why consolidation seems like a good idea. Seven kids that walk home from school every day are just seven kids walking home. That is, until a group of ten kids start giving them trouble. The common interest of self-preservation influences the kids to work together and act as a single entity: a gang. When money is scarce, and competition for resources more fierce, these processes occur even more rapidly.

Those against the consolidation of European mobile operators remind us that the more companies on a market, the stiffer the competition gets; stiffer competition keeps prices lower, and provides the most solid encouragement for companies to pursue development. MobilityTechzone Senior Editor Peter Bernstein recommends a look at U.S. telecommunications history for evidence. What you will find is that competition is the best elixir for development, not consolidation. Here, you could extend the gang metaphor and say that the gang mentality (consolidation) leads to a bunch of kids who get safe and lazy instead of leaner and tougher by necessity of constantly fighting.

If supporters of the consolidation are correct to think that the extra money these companies would save by combining with each other would actually go into developing more advanced network infrastructure, then yes, it does seem like a good idea. The remaining question is how to guarantee that this is the direction in which the money would go. Meanwhile, in an environment with cutthroat competition between many companies, the guarantee is clear: if you don't develop and innovate, you go under, and someone willing to do these things will replace you.

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