T-Mobile Orange Merger Threatened by Broadband Policy

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The proposed merger between two of Britain's largest mobile phone operators - T-Mobile and Orange - has been thrown into doubt after a last minute intervention by the 5 mobile broadband networks and the Government.

The UK mobile broadband market is a key part of Gordon Brown's vision for greater broadband access for the UK as outlined in this years Digital Britain report. It is feared that the resulting 37% share of the mobile spectrum that the new merged entity would control would threaten the provision of mobile services to rural areas. 

The problem is complicated, but has its roots in the fact that the parts of the mobile spectrum that were sold to mobile carriers cover the major urban centres of the UK but do not extend into rural areas. O2 and Vodafone currently own the parts of the spectrum that do cover rural areas and have done since the 1980s.

Because the newly merged T-Mobile Orange entity would carve up 37% of the overall UK bandwidth, it is though that the EU will make them sell some of their bandwidth to other carriers to prevent the development of a monopoly.

However, as rural mobile broadband coverage is largely unprofitable, the new company would be sure to sell those aspects of their business off. Assuming that O2 and Vodafone would buy those parts of the spectrum, that would give them a monopoly in the provision of mobile broadband to rural areas - but little financial incentive to improve their services.

While the UK mobile broadband market is seemingly awash with offers, it is actually divided up between a very small number of operators, and effective coverage is still largely confined to the cities. If the Government is going to deliver on its promise of broadband for all, it will have to find a way to encourage innovation in this market or find a way to subsidise rural access. Given the track record for Government choosing winners in open markets, it seems that Britain's "digital divide" will persist for many years to come.