A High Court ruling forcing UK mobile network providers to lower their tariffs will increase competi...
A High Court ruling forcing UK mobile network providers to lower their tariffs will increase competition within the sector.
In January, Oftel, the UK Government's office of telecommunications, published the findings of an inquiry conducted by the Competition Commission into call charges to mobile networks.
The research concluded mobile operators had been significantly over-charging consumers for connecting calls to their networks. The commission recommended a one-off cut to be implemented by 24 July 2003, and three further annual reductions. Oftel modified the mobile operators' licences in April to require the first reduction of 15% to be made by July.
Subsequently, Vodafone, T-Mobile and Orange lodged an appeal with the High Court to have Oftel's proposals quashed.
On 27 June, the High Court rejected the appeal from the companies and backed Oftel's 15% cut in charges for calls made to mobile phones. This means Vodafone, Orange, mm02 and T-Mobile must cut some UK call charges by around 50% over the coming three years.
Sacha Sadan, senior UK fund manager at Gartmore Investment Management says the ruling was expected and as a result, the court's decision was already priced into the market.
He says: 'We knew it was not going to be good news for these companies but the equity market had not factored in a win for this court case. Vodafone did not go down in value on 27 June after the announcement was made on 26 June. It closed at 120p and on the Friday after the court ruling it closed at 121.75p. 'I prefer Vodafone over mm02 as it has a larger global presence whereas mm02 is just the UK, Germany and Ireland. I will not reduce my stock holding in Vodafone because of the High Court's decision, but I am more concerned about the increasingly competitive environment.'
UK investment manager at Axa Investment Managers, Stuart Fowler, agrees the chief issue at stake within the industry is increasing competition.
He adds: 'For a group like Vodafone the court decision will have very little impact because the UK is not a large part of its business. Mm02 on the other hand is a lot more reliant on the UK. The market has had four players and now there is a fifth, 3, and this has the potential to destabilise the market. 3 has already cut its costs and it had a fairly disastrous launch.'
Sadan says apart from the fact 3 has already cut prices substantially, it does not yet have Nokia in its range of handsets and this will hold it back as they are among the most popular sets.
Both managers agree there are certain areas where companies in the sector are likely to raise prices in order to recoup some of the income lost because of the High Court's ruling, such as the subsidising of handsets.
Sadan describes the competition in this market as fierce, and one of the most competitive in Europe, adding there is always a company who will cut costs in order to gain market share. Sadan also notes the further threat of a European ruling to address the issue of roaming charges costs, expected in the near future.
Market had priced in ruling.
UK is a small part of Vodafone's business.
Could increase phone usage.
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