Free Business Essays - What Is The Impact Of European Integration On The UK Mobile Telecom Markets?
Grin (2003) provides one of the best starting points to address this topic from. His analysis of the history, development and achievements of the Single European Market in both the goods and services sector from the end of World War II, when the concept of a Single European Market was used to deter the spread of communism, right up to the turn of the millennium. Jelassi and Figon (1994) provide another useful piece, with strong links to the telecom sector, based on Brun Passot, a small French company specializing in the distribution of office supplies, and its development of a set of telepurchasing applications over the past few decades. These services allow data on product availability, price lists, orders, acknowledgement receipts, delivery notices, in-voices, and related bank payments to be electronically transmitted. Most recently, the company began using ISDN, to make it possible to look up the photos of the 12,000 products that Brun Passot markets. This article illustrates how a small-sized company has used telecommunications to improve the quality of its customer service, shorten lead time and reduce management costs, as well as create new business opportunities in the wake of the expanding markets created by European integration. The 1993 fall of mobility barriers within the European Community, leading to the formation of the single European market, presented for Brun Passot a unique business opportunity to further leverage its telecom infrastructure and gain new markets, a scenario that was to repeat itself for the telecommunications industry as a whole five years later, when the telecom barriers fell in 1998.
However, others are much more critical of the Single European Market and its impact and achievements, with the claim being made that "Opening the markets has not brought the growth effects anticipated or promised. Discussion therefore has shifted to necessary 'structural reforms" as a prerequisite to the achievement of the potential benefits of the Single European Market." (Nowotny, 2004) The main tendency of these 'structural reforms' have been, in essence, a more or less far reaching dismantling of the traditional European systems of workers protection and social benefits in a move towards a more level, integrated market. This has meant an overhaul of the European 'welfare state model', which is not only a core element of a European identity, but also of the many member states, which still have widely varying national cultures and practices. This is in stark contrast to the earlier piece by the American author Chauvin (1990), which highlighted the high expectations, held by many analysts, of the future developments in the European economy as of July 1990. The implications of the single European market on the free movement of goods, persons, services and capital were immense, and there were several examples of American corporations which had started corporate joint ventures or business alliances with European communities. Indeed, although Chauvin's article shows potentially unrealistic expectations, on both sides of the Atlantic, it's view of the business environment at the time does show that there have been some positive effects of the integration on free movement, business transactions amd the regulatory and enforcement powers of the European community.
Of course, as Oliver and Jarvis (2003), Snell (2002) and Barnard and Scott (2002) all analyse, the main concerns with, and impediments to, the free movements of goods and services within the Single European Market were the legal challenges and implications. As such, Oliver and Jarvis (2003) examined the free movement of goods within the European Community under the provisions of the treaty. First, the scope is charted, then the 'measures of equivalent effect' are analysed and the justifications and other exceptions are discussed. In separate chapters the editors pay attention to agriculture, state monopolies of a commercial character, Community Legislation relating to the free movement of goods, and the European Economic Area. In contrast, Snell (2002) examines the relationship between goods and services in a very systematic way, before coming to his conclusions. In his view there are strong economic and legal arguments for a similar approach in the two fields, with the economics of trade in goods and services being the same, and the theory of comparative advantage applying to both freedoms. Barnard and Scott (2002) present a collection of articles exploring the legal foundations of the Single Market, with the approach adopted being a thematic one, with each theme being explored in the context of the various freedoms. In the view of the authors, an accurate evaluation must deal with four factors: the Treaty articles themselves, Community legislation, the case law of the European Court of Justice and lastly the actions taken by the Community institutions, and all four interact in a significant way.
Other interesting and useful pieces examine what happens when the absolute legal aspects ad regulations of the Single European Market come into conflict with member states' internal laws and regulatory bodies. Permanand and Mossialos (2005) offer a theoretical perspective on pharmaceutical policy-making in the European Union, and show that the lack of achievement of a single European market in medicines is in fact "the result of a clash between the supranational free movement rules and national healthcare policy competencies." (Permanand and Mossialos, 2005) The paper considers the roles of the European Commission, the member states, the industry and consumer interests, patients, as the main stakeholders, and frames the discussion within an integrated macro- and meso-level approach. Specifically, the paper shows the extent to which industrial, rather than health care, policy interests have driven the development of the regulatory policy in the sector to reduce the free movement of goods within the single market, and seeks to understand the political dynamics shaping the on-going evolution of the regulatory framework. The opposite scenario is discussed by Echikson and Light (1997), who examined how France was forced to recognize other European ski diplomas, after denying English ski teachers work permits based on their teaching accreditation. The decision was based upon the single European market, and the policy of ensuring the free movement of goods and labor, and was enforced despite the insistence of many French ski instructors that non-French counterparts would present a safety risk on the ski slopes.
Of course, price convergence was one of the aims of the Single European Market, however it has been examined in depth by surprisingly few pieces of research. In the initial phase of the development of the free movement of goods, van Mourik (1987) and Gremmen (1985) posed the question of whether factor prices had tended to converge in the EC since the Rome Treaty had become effective. Their calculations of the coefficient of variation of intra-industry wage differentials in the EC for the years since 1958 led them to conclude that convergence had indeed taken place until 1968 but that, after that year, prices and wages had tended to diverge again. More recently, Morley, B. (2002) investigated whether stock prices and exchange rates are related and whether there is evidence of convergence in the structure of this relationship across members of the European Union. Given the differences between the financial systems in some European countries, the result is of importance to those countries, and their telecom firms, that have joined the European Single Currency and those attempting to converge their economies in preparation for joining at a later date, such as the UK. Stock prices have been used extensively to explain and predict the exchange rate, and thus relative prices between countries, over recent years, as they reflect capital movements between stock markets. Following a discussion into the differing nature of the financial systems across the EU, the model and results from the empirical tests are discussed and finally there is a summary and a discussion on the policy and industry implications.
Most recently, Engel and Rogers (2004) used a detailed data set of prices of consumer goods in European cities from 1990 to Spring 2003, investigating the question of whether the introduction of the euro in January 1999 increased integration of consumer markets as reflected by consumer prices. In fact, we find no tendency for prices to converge after January 1999. This finding holds even when we control for a number of factors that might affect price dispersion. On the other hand, we find that there has been a significant reduction in price dispersion throughout the decade of the 1990s, suggesting that efforts to reduce economic barriers initiated early in the decade may have in fact had the effect of significantly increasing the integration of consumer markets.
The history of telecoms liberalisation can be tracked over the past decade or so, indeed, since the early 1990s, when Management Services (1992) reported how the liberalization of telecom services from statemonopolies to market driven competitive services was rapidly spreading across all of Europe. Some countries, such as the UK and Germany, were well down the road, even in 1992, and the influence was spreading East, too, where Hungary became the first country to announce that it was privatising its telecom organisation, in the wake of the old Cocom trade restrictions against it being lifted. Indeed, despite the fact that free movement of goods and services was not yet assured in Europe, former monopoly operators like British Telecommunications PLC and Deutsche Bundespost, along with the post-liberalization newcomers, were busy courting each other to form Pan-Europe alliances on things like managed networks, mobile communication and so on, in preparation for the predicted increased liberalisation that was soon to follow. Woolnough (1993), provides more useful comments on the liberalization of telecommunications in Europe, including the factors in favour of telecommunications liberalization, and the agreement made between European countries to fully open markets for telephone services. Woolnough's research also includes the results and analysis of a survey, made by Harris Research, among Europe's business leaders on the impacts and benefits of telecoms liberalization.
By 1993, with the barriers to free movement being removed at a rapid rate, it became clear that all telecoms companies would have to be released from state monopoly control in order to survive and thrive. Electronic News (North America) (1993), focused on France Telecom's change from state owned enterprise to legal corporation, in order to give it more flexibility in negotiating partnerships with foreign operators or software-service firms, due to the extra competitive pressure. This article also predicted likely changes that would come about as a result of the full liberalisation of telephone services in the European Community, which were set for January 1998. In fact, the plans for full liberalisation were so keenly anticipated; that in 1995, British Telecom chairman, Iain Vallance, was strongly urging accelerated progress toward a liberalized telecommunications market in Europe, making proposals for the June 1996 meeting of the industrialised G7 member countries. This event was reported by Bright (1995), who also strongly defended the benefits of market liberalization in France, and analysed the effects of the telecom regulatory draft in Germany.
Of course the mobile telecoms market and operators were of great importance in the early days of telecom liberalisation, with Lavin (1995) making the prediction that mobile operators would push European telecom liberalization through before the European Union's 1998 deadline. He expands on the basis of the prediction, and also focuses on the ongoing cellular competition in various countries of the world, and its impact on the global markets, and Bernier (1996), examines how free access to internal European markets and competition, not just from local companies, but also from ones in the United States and Japan, will affect on Europe's end users. Further pre liberalisation reports were provided by Hayward (1997) and Leuck (1997), although Leuck's focus was more on liberalization and privatization of telecommunications in the Baltics and Central and Eastern Europe. Leuck also investigated the factors which compelled many nations to privatize their public sector assets, including the basic notions underlying privatization, and the factors that are encouraging governments across the region to privatize and liberalize telecom. He concludes with a brief look at the telecommunications regimes in Hungary and Romania, and their potential reactions to liberalisation.
Post-liberalisation, Shankar (1998) focused on the economic parameters and benchmarks that would be required in order for the telecommunication industry to adjust to the liberalization of telecommunication services in Europe, and how customers in Europe reacted to this move. He also included comments from Peter Bonfield, chief executive of British Telecom, which had been one of the most vocal supporters of liberalisation, and also looked at the possible disadvantages to the incumbent community, including the views of several telecommunication analysts. Indeed, these economic parameters and benchmarks were not met all at once, with Beardsley (1998) claiming that 'Full telecom competition in Europe is years away', mainly due to local regulators having the power to determine the number of competitors in each individual market, for example, because they decided who received a licence. He also claimed that regulators are all important in determining most of the aspects of liberalization that would ultimately affect the cost and quality of services, and operators' competitive positions. The report also gave a basis for the ranking of ten European telecommunications markets, together with a brief history of the industry liberalization, and predictions on where it might lead.
One year later, Business Europe (1999), detailed findings of British Telecoms' progress report about the competition in the European Union's telecommunications market, together with the European Commission's review of telecommunications policy. The serious obstacles identified by the report included slow and discriminatory licensing procedures in some member states, lack of competition in the 'local loop' connecting users to the network; the need for a clear policy on radio spectrum allocations, and--undermining the whole process--the failure to establish fully independent and well-resourced national regulatory authorities. The report also claimed that many in the industry, and in the European Commission, favoured the creation of a powerful pan-European regulator, but most member states were adamantly opposed to this idea.
Indeed, it took a further two years before Xinhua (China) (2001) was able to report that The users of Portugal's local telephone service, beginning on January 1, will be able to make their calls: local and regional, via any telephone company other than Portugal Telecom in the national market. This was one of the key steps in Portugal integrating into the liberalization process in Europe's telephone service, following on from 2000, when a dozen new operating companies were introduced into the inter-urban and international phonecalls market. And finally, in 2003, Business Europe (2003) was able to report that a regulatory framework for the liberalization of electronic communications sector would come into effect from July 25, 2003 in all European Union (EU) nations. This article also covered the introduction of EU antitrust rules for policing the sector, a review of the main benefits from telecom liberalization, and the introduction of competition in the sector. Liberalisation has now progressed to the stage where Nagpal (2005) was able to focus on the introduction of spectrum trading to the European telecommunication market, together with the potential cost benefits of said introduction in a coordinated manner to European countries. He also analyses the advantages and impacts of the harmonization of frequency bands in radio technologies to the moblie telecommunication sector, and the impact of the use of spectrum bands on the mobile market.
Obviously one of the main impacts of European integration on the UK telecom market can be seen in the increased competitiveness and minimum economies of scale resulting from the larger market. A recent article in Professional Engineering (2005), reported that around 180 research and development engineers at Marconi were made redundant after the firm failed to win a slice of a huge BT order. Marconi cut 800 jobs, including 300 in Liverpool and 450 in Coventry, reorganising its UK operation to become a 'centre of excellence' in soft switch products: software seen as the brains of the telecoms network. As a result, other offices in central Europe were assigned to specialise in wireless products, with optical and access networks will be covered from southern Europe. This example not only shows the increased competitiveness that has resulted from telecom liberalisation, but also the fact that the free movement of goods and services now allows many companies to base different parts of their operations in different countries within the European Union, dependent on local wages and employment regulations. Marketing Week (UK) (2005) shows another good example of how the increased competitiveness is forcing UK mobile telecommunications companies to move more rapidly within their markets. It's article reports that FreeMove Alliance, the telecommunications equivalent of the airline industry's Star Alliance Inc. marketing partnership, recently launched a new website aimed at its 170 million potential consumer and business users across Europe. FreeMove was set up in2004 by T-Mobile, Orange, Telefonica Moviles and Telecom Italia Mobile in an attempt to gain the economies of scale in marketing that are required to rival Vodafone in the integrated European market. The website's launch was also timed to coincide with a 5m 'above the line' campaign, which included posters at major European airports and press advertisements in leading European business titles.
One of the simplest impacts on the UK mobile telecoms market is the need for firms to grow, whilst also implementing new strategies appropriate to the regions into which they expand. Chandiramani (2003) analyses some of the effects of this growth, reporting that in the middle of 2003, mobile phone adversaries Orange PLC and Vodafone AG both appointed board level group marketing chiefs for the first time, in a concerted attempt to put customer needs at the heart of their complete European growth strategies. Orange appointed Bill Stewart to the new role of executive vice-president for strategic marketing, while Vodafone shifted Peter Bamford, chief executive for Northern Europe, Middle East and Africa, to the job of chief marketing officer. At Vodafone, Bamford spearheaded a sharper focus on customer needs, and oversaw activities for the group including brand, product development and global networks, particularly in the Single European Market. Of course, the other side of this increased competitiveness, and growth of the mobile telecom giants, was increased difficulty for the so-called 'mobile minnows', as reported by Lewin (2003). He focused on the plan of Hutchison to launch its third-generation mobile operation in Great Britain as of March 2003, and the factors leading up to that, which had led to an increase in profit margins and share prices for Europe's largest mobile operators. Examining the profit margins which these different firms generate, Lewin showed that small mobile operators, with a market share of 15% or less only generated profit, (before interest, tax depreciation and amortisation) margins of less than 10%, whereas many market leaders were typically able to manage 40 to 45% per annum.
Indeed, analysts are now increasingly convinced that, rather than the larger integrated markets creating new opportunities for firms to enter the market, the increased competitiveness is actually creating entry barriers which keep potential entrants out. Hutchinson's entry into the UK mobile telecommunications market was ominously preceded by the article: 'Can the UK market take a new player?' (New Media Age, 2002), in which various executives presented forecasts on the implications of the arrival of wireless communication firm Hutchison 3G in the United Kingdom. A far more damning report was produced by Chan (2002), who claimed that possible provision for its UK 3G investments, coupled with higher borrowing costs, were depressing Hutchison's share price, with many analysts claiming that 3G was unproven technology, and until Hutchison's European networks were launched there was no way to gauge its success. These articles show that not only is it now more difficult for newly entering mobile telecom operators to succeed in the new integrated European market, but that analysts are also more wary of making positive predictions, and shareholders are less willing to invest.
Another impact of the steadily integrating market is the need for firms to create and exploit new revenue streams, in order to compensate for the increased competition in the more traditional areas. Joseph and Unsoy (2004) report on one way mobile telecoms companies are attempting to do this, by further developing and implementing push to talk (PTT), a walkie-talkie service offered by many current European mobile network operators to improve average revenue per user. They examine how vendors and operators will shape the development of the PTT market, and also look at the key factors currently contributing to the success of PTT in Europe, together with the many services and applications that can be based on PTT. However, Klemperer (2002), sounded a warning to many firms with his article on the launch of the 'third generation' (3G) service, which many predicted would be a significant revenue stream for a large portion of Europe's telecom firms. His article reports that there were enormous differences in the revenues from the European 3G, or 'UMTS', mobile phone license auctions, from just 20 Euros per capital in Switzerland to 650 Euros per capita in the UK, though the values of the licenses sold were similar. Although poor auction designs of the auctions was also crucial, with Klemperer discussing the auctions in the UK, Netherlands, Germany, Italy, Austria, Switzerland, Belgium, Greece and Denmark, this is a clear sign that price convergence is not as advanced as many expert would claim.
References:
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