Mallinson: Looking back on the 'noughties' – page 2

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All is not lost, thankfully. The iPhone appeals to a high-level market segment and Apple may not easily scale down to smaller devices, lower spenders and worldwide distribution including developing nations. Consumer iPhone prices can be very low, but service charges and contract commitments are substantial. Various alternatives including RIM, Nokia's Ovi and Vodafone 360 provide enhanced services while providing operators with more control and a share of incremental revenues. Securing a strong position in the mobile Internet is a most pressing strategic goal for operators early this decade.

Operator competition

Whereas efficiently functioning markets are illustrated by new entrants and consolidation, there has been very little of the latter so far. Successive rounds of spectrum licensing including at 1800 MHz for 2G in the late 1990s and at 2100 MHz for 3G in the beginning of the millennium have steadily increased competitive pressure. Brutal economics in mobile networks and services is taking its toll on operators. EBITDA margins have fallen sharply for many carriers in recent years, with an average of 33 per cent lately. In the UK with five network-based operators plus MVNOs, EBITDA margin percentages languish in the low twenties. CAPEX is being squeezed to European average levels approaching just 10 per cent of revenues.

The proposed merger between Orange UK and T-Mobile UK should reduce the unbearable pricing pressure for all operators in the UK and it will reduce costs for the combined entity. However, the deal's completion could be significantly delayed if the European Commission refers it back to the UK telecom regulator Ofcom. Similarly, France Telecom's Orange Switzerland and TDC's Sunrise are seeking to improve their cost structure and competitive position by merging their Swiss network operations.

I remain sceptical about how effective these joint ventures among multinational mobile operators will be. If this pattern of mergers continues across dozens of nations within Europe and elsewhere, corresponding complex and inefficient management structures will form. Parents' partners will inevitably vary from nation-to-nation, resulting in many different relationships to manage. Many possible synergies will be lost with disparate objectives, preferences and practices among parents.

Swaps such as that suggested between Vodafone Turkey and T-Mobile UK last summer make more sense. For Vodafone, this would have significantly increased share of the home market under its unitary control while reducing the number of national operators for it to manage and avoid the need to compromise on management decisions with a partner.

Unless regulators are intransigent, further consolidation is inevitable--one way or another.

Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007.

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