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September 8, 2009
Despite two months of market speculation about a possible asset sale of T-Mobile’s UK operations to either Vodafone or Telefónica O2, the German firm has opted to enter into a joint venture with France Telecom’s Orange. Both Vodafone and O2 have made offers ranging from £3.0bn to £4.0bn for the German firm’s UK operations; however, Deutsche Telekom seemed uneasy about selling off its assets and in turn having to write down its UK business to £4.5bn.
The announcement of Orange and T-Mobile’s joint venture comes at a critical time in the UK mobile market, deemed by some analysts as one of the most competitive markets in Europe. The presence of five separate operators, along with a host of successful MVNOs, has proved overwhelming for some operators.
The announcement of a merger will propel the newly formed Orange-T-Mobile venture to the number one position in terms of subscriber market share, with 40.9% of subscriptions (including Virgin Mobile) for 2009 (see Exhibit).
Exhibit: Expected subscribers (m) by UK operator, 2009-2014
Source: Pyramid Research, Pyramid Research, Mobile Forecasts
More importantly, the combination of the two firms’ mobile operations and Orange’s fixed-line business will provide the necessary groundwork to launch a host of convergent products. So far, the UK market has seen little in the way of fixed-mobile convergence trends, with the exception of BT’s Fusion offering. With an estimated 913,000 DSL subscribers in 2009, Orange already has a well-developed fixed-line network consisting of broadband and VOIP as well as a strong business model for launching an FMC service. Meanwhile, T-Mobile recently received an award for having the UK’s best mobile broadband offering. In a market where FMC services remain limited to business users, the joint-venture will bring the UK a step closer to wider FMC availability. In addition, Deutsche Telekom’s fixed-line expertise, as evidenced through its successful T-Home offerings in Germany, may prove critical to helping Orange finally realize its plans for an IPTV launch in the UK.
Although no statement has so far been issued from Ofcom or the Office of Fair Trade, Pyramid Research expects the regulators will allow this merger to go forward. The high level of competition between operators has helped bring prices to record lows compared with Europe, and the presence of heavyweights such as Vodafone and O2 will help maintain such an environment. Meanwhile, for T-Mobile and Orange, the joint venture will see both operators strengthen their bargaining power with Ofcom on issues like spectrum refarming and mobile interconnect pricing. Likewise, both operators have commented on potential synergies — resulting from the eradication of overlapping services and infrastructure — reaching close to €4.0bn, with significant savings in annual operating expenditures. Likewise, with 3G representing an estimated 30% of each operators’ subscriptions, the decision to enter into a joint-venture will see the acceleration of 3G network rollouts across the UK. The latter will likely put pressure on fixed-line operators to lower the price of DSL and cable as consumers will benefit from the greater availability of mobile broadband services across the United Kingdom.
— Andrei Tchadliev, Analyst, EMEA
Related content:
Communications Markets in the UK
Country Intelligence Report published September 2009
The UK telecommunications market generated more than $59bn in revenue in 2008 and is expected to continue growing at a 0.4% CAGR in local currency terms. Mobile broadband’s popularity and greater coverage will increase mobile data revenue from $9.9bn to $15.5bn over the forecast period, and the refarming of 900MHz spectrum for UMTS services will likely see more people using mobile broadband service as their primary Internet connection. VoIP revenue is expected to more than double in size from an estimated $679m in 2009 to $1.6bn in 2014. This Country Intelligence Report analyzes the UK's communications, media and technology industries, including key trends, regulatory pressures and the competitive landscape, making it an excellent complement to our Forecast products.
Fiber Buildouts in Europe: A Competitive Necessity for Telcos
Europe Telecom Insider published August 2009
As European economies start to show positive growth, operators’ position on fiber coverage will become decisive for competitiveness and post-recession growth, as DSL is increasingly lagging in terms of coverage, capacity and price compared with cable and especially fiber. Fiber could shield telcos from mounting competition and fixed-mobile substitution and provide opportunity for further growth. This report examines the potential of fiber developments in Europe and contains a detailed analysis of the competitive technology and fiber developments in selected countries: the Netherlands, Romania, Russia and Spain. The report also provides Pyramid Research’s five-year forecast on FTTH and FTTB in the four selected markets and in Europe overall.
Europe’s Smartphone Market: Sustained Growth Is at Risk
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Western European Mobile Handset Forecasts
Forecasts published quarterly
Our Mobile Handset Forecast products provide a complete picture of handset sell-through in each of France, Germany, Italy, Spain and the UK. The Excel output includes five years of historical data and five years of market projections for metrics such as total handset sales, handset sales by network technology, new handset sales (by technology, by technology generation, by feature set), smartphone handset sales, vendor market share and handset ASP. We believe our Handset Forecasts are superior because they capture sell-through (units sold to end users) rather than unit shipments (sales from manufacturers to distributors) and rely heavily on our Mobile Demand Forecasts. Moreover, they are based on extensive field research and a consistent methodology that is applied to all markets.
Spectrum Refarming for 3G: A Low-Cost Boost for Mobile Broadband
Insider published July 2009
As existing mobile networks are stretched to their limits, spectrum refarming offers the most cost-efficient and practical method of meeting demand. Pyramid Research believes spectrum refarming, although controversial, will benefit operators in Europe by boosting network capacity economically while improving the availability and quality of existing services. This Insider analyzes the advantages of refarming 900MHz spectrum for UMTS, looking at data usage, mobile broadband computing, frequency characteristics, capex, 3G coverage and competition. It draws on the refarming experience in Finland, Switzerland and the UK to discuss different regulatory considerations and evaluate strategies.
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