Competition II

, posted: 11-Sep-2009 11:49

Interesting report from Europe following the merger talks between T-Mobile and Orange in the UK.

Tie up may herald European Telecom Mergers (Bloomberg)

Consolidation in European telcos is already well under way with talks between several of the big players in different markets. Spain, Italy and the UK are just the tip of the iceberg it seems.

“If your business is not the No. 1 or 2 in an established market, you really should consider exiting the market or team up with another niche player to reach critical mass,” said Boris Boehm, a fund manager at Aramea Asset Management AG in Hamburg, which oversees about $1 billion, including Deutsche Telekom and France Telecom shares. “Mobile-phone executives all over Europe will certainly examine the Orange-T-Mobile deal very closely.”

If the UK can't sustain five operators and is moving to four (with a population of 60m) and Australia can't sustain four operators and is moving to three (with a population of 20m), who thinks New Zealand will see any more operators come into this market with the intention of building a nationwide network?






Other related posts:
Of termination rates and regulatory holidays
Minister recommends regulation - Vodafone's response
Vodafone's response to the Commerce Commission's report




Permalink to Competition II | Add a comment (8 comments) | Main Index




Comment by Chris, on 11-Sep-2009 12:27

I think 3 is enough for us, any less and the prices would be to high. Any more and they wont have room for all the cell towers lol


Comment by KiwiOverseas66, on 13-Sep-2009 17:22

In india there's dozens of providers - which makes for great rates but the quality of customer service is crap. If I remember rightly all the providers combined sign up about 6-7 million new users a month (in some months its as high as 10 million new subscribers). Problem is no one is interested in retaining customers, or attracting existing users from other networks - there's simply too many new subscribers still out there (the complete lack of concern is a real shocker). In addition - the companies are making so much money on voice there's no real incentive on building a full range of mobile data services (there are some 3G providers - but not many).

I'm guessing in mature markets consolidation makes sense - but for some of the emerging markets there are still many days of making hay yet.....


Comment by langi27, on 14-Sep-2009 13:59

This article highlights my point from your 1st Competition post,

Those who control the infrastructure, are the ones who make the market place competitive, not the MVNO's your so willing to back. If you can control your own retail pricing you can compete, MVNO's cannot control this because the baseline has already been set, you can only reduce your internal costs and try to negotiate a better deal when your supply contract comes up for renewal. That won't change the market place no matter how creative you get.

This just highlights the point, unless I've mis-read what your trying to say. MVNO's will suffer.

Its also interesting to note Operators are following suit from what equipment suppliers did 2-3 years ago.

Marconi - Ericsson
Nokia - Siemens
Alcatel - Lucent

They believe they can be more competitive by joining together, I don't believe any of them have had an easy road of it. Or are actually making the profit they thought they would (Alcatel-Lucent having the worst problems of all) Merging massive companies together is a difficult game (I know I was in the middle of the Nokia-Siemens one). Too many personalities clash, merging company procedures and policies casues major problems, trying to understand each others business while reducing headcount, offices, sales, marketing, reducing IT, HR, Logistics etc etc all takes haeps of time and money.  

I can only assume if these mergers go ahead, you won't realize the benefits if any at all for several years, while they sort out their internal problems.

Will be interesting to see if Telstra, Vodafone, Optus or an unknown group try to buy out 2 Degrees once up and running with a big enough customer base.

I don't hold any hope that any MVNO's will make a big enough dent in the NZ market to be competitive against VF or Telecom. 2 Degrees perhaps may raise an eyebrow depending on their next round of packages and deals.




 


Comment by Paul Brislen, on 14-Sep-2009 14:06

But that goes to my point - MVNOs don't care about any of this because they can use any network... so what if Telco A and Telco B merge and spend three years sorting out their systems? You don't care - you just use the network...

The idea that MVNOs have a fixed cost base is true for network providers as well, only instead of it being a cost levied by a third party network owner, it's a cost levied by the finance requirements: you must pay back your investment in a timely fashion and if that means sweating the assets, well so be it. No more cash till you've paid off the last round.

Different base but same outcome. You have to make enough to cover your costs.

As for 2D, my own expectation is they'll sell out to Telstra before their fifth birthday. Telstra wants a full market play, but doesn't have mobile. 2D wants to compete but is up against total telco marketing (eg CallPlus/Slingshot are bundling with fixed line/bb). And let's not forget, 2D is owned by a private equity. They always have an exit strategy.


Comment by langi27, on 14-Sep-2009 14:13

This article highlights my point from your 1st Competition post,

Those who control the infrastructure, are the ones who make the market place competitive, not the MVNO's your so willing to back. If you can control your own retail pricing you can compete, MVNO's cannot control this because the baseline has already been set, you can only reduce your internal costs and try to negotiate a better deal when your supply contract comes up for renewal. That won't change the market place no matter how creative you get.

This just highlights the point, unless I've mis-read what your trying to say. MVNO's will suffer.

Its also interesting to note Operators are following suit from what equipment suppliers did 2-3 years ago.

Marconi - Ericsson
Nokia - Siemens
Alcatel - Lucent

They believe they can be more competitive by joining together, I don't believe any of them have had an easy road of it. Or are actually making the profit they thought they would (Alcatel-Lucent having the worst problems of all) Merging massive companies together is a difficult game (I know I was in the middle of the Nokia-Siemens one). Too many personalities clash, merging company procedures and policies casues major problems, trying to understand each others business while reducing headcount, offices, sales, marketing, reducing IT, HR, Logistics etc etc all takes haeps of time and money.  

I can only assume if these mergers go ahead, you won't realize the benefits if any at all for several years, while they sort out their internal problems.

Will be interesting to see if Telstra, Vodafone, Optus or an unknown group try to buy out 2 Degrees once up and running with a big enough customer base.

I don't hold any hope that any MVNO's will make a big enough dent in the NZ market to be competitive against VF or Telecom. 2 Degrees perhaps may raise an eyebrow depending on their next round of packages and deals.




 


Comment by langi27, on 14-Sep-2009 14:31

What the!!!! of course MVNO's can't use any network, look at what Telecom have done to Telstra, they are not allowing anyone to access their 3G network for the next 2 years, and I'll also take the beat Vodafone would not have allowed an MVNO onto their 3G network back in 2004 either. You can argue that point, but we will never really know. GSM maybe, 3G not a chance.

So again, your points are flawed. the Network owner is like the puppet master pulling the strings. MVNO's add little in the way of competition.

Its not uncommon for Equipment suppliers to finance network builds, and only when the network is up and running with paying subscribers does the Network owner pay for the hardware, usually in installments and over several years.  MVNO's have no way of doing this kind of deal.
So while the Network owner does have a cost base, they can be a lot more creative with their cashflow, this allows them to be immediately competitive.

MVNO's not so.


Comment by langi27, on 14-Sep-2009 14:46

Side note:

Tend to agree with your 2D comments, 5 years would be a good stretch for venture capitalists. Took Bellsouth 5 years (1995-98). Also agree they would be stronger with some fixed line packages, expect that's in the 10 year basket. Unless Telstra open up the cheque book.

Would be interested to see what Hautaki trust want to do with its part of the network, I don't imagine they will want to sell.


Author's note by jointhedebate, on 14-Sep-2009 14:52

I was talking about MVNOs in general (eg Virgin in the UK which has recently swapped network operators) and yes, Telecom's choice of 850 only does make it more difficult, but that's a byproduct of local issues not of the MVNO process itself.

As for 3G wholesaling, you're right, we'll never know... but watch for LTE when that launches (in the not too distant future) and judge from there and I all but guarantee Vodafone will wholesale access to it immediately (I have no inside knowledge of our plans for LTE but I know the Wholesale team - they're incentivised on selling wholesale and will demand access to such things immediately). Even HSPA+ which will be sooner (and 900MHz which cost $500m to build and was immediately available for wholesale).

Cheers

Paul


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Paul Brislen
Auckland
New Zealand


You’ll have heard about mobile termination rates and how the Commerce Commission is investigating whether or not to regulate them. But what is a mobile termination rate, how does it work and why is it so important?

In this blog, we’ll try to answer your questions, tell you a bit about what we think and keep you up to date with the Commerce Commission and its process.


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