In 2010 Deutsche Telekom and France Telecom formally combined T-Mobile UK and Orange UK in a 50:50 joint venture (JV), branded as Everything Everywhere. For the JV, DT contributed T-Mobile on a cash-free, debt-free basis (including its half-share in the 3G network joint venture with H3), while FT contributed Orange UK including £1.25 billion of net debt to equalise the value of their contributions. Everything Everywhere expected to realise synergy savings of at least £3.5 billion (net of integration cost) and develop new revenues from £1.4 billion to £1.9 billion by 2014 from its B2B, fixed broadband, wholesale and business activities.
Existing customers of Orange and T-Mobile have been able to access both networks at no extra cost as a result of Everything Everywhere combining the respective GSM, 3G, 4G, fixed broadband and WiFi networks. Although Everything Everywhere operates a single network, the operator has retained the Orange and T-Mobile brands for now in a bid to lessen the likelihood of losing customers to rivals.
Operationally, Everything Everywhere is trumpeting the creation of a ‘super network’ with 3G national roaming soon to complement 2G national roaming. The company claims that in 2010 over 100 million additional calls were made on the network as a result of 2G roaming. Thus far, the company has managed £146 million in opex savings.
The perceived success of the UK enterprise has encouraged the two parent companies to collaborate on the continent as well, though this will be restricted to a JV for procuring handsets and equipment as well as IT infrastructure. The aim is collectively to save up to €1.3 billion annually from 2014 (an estimated €400 million for DT and up to €900 million for FT). A number of schemes based on the JV have been set up to test the practicalities of the scheme, though units existing in both Bonn and Paris may complicate matters unnecessarily. The JV will be responsible for spending about a third of the companies’ €40 billion collective budget.
Both operators are obliged to invest substantially in network infrastructure during the next few years. This is a two-forked obligation: on the one hand they must meet customer demand for mobile bandwidth, and on the other they must have the infrastructure in place before they can hope to raise revenue from high-end mobile data services. In the UK, T-Mobile made the mistake of encouraging customers to use data services before having a capable network, with the result that the operator was obliged to halve the monthly data allowance to its subscribers. In Germany, T-Mobile has committed itself to launch commercial LTE services by the end of 2011 in the 800MHz band, aiming to serve up to 1,000 locations. In France, FT now has about 15 million mobile broadband subscribers (of which about 9.5 million are 3G subscribers), compared to about one million five years ago. More than a third of revenue is now derived from data services.
Given these investment commitments, we may see a number of similar collaborative schemes undertaken in coming years. Operators are faced with the stark reality that there is a diminishing return from customers: the cost of building and maintaining networks is currently being matched by revenue, but this revenue is being threatened from all sides. With continued regulatory measures from the European Commission to reduce termination rates (MTRs) and abolish roaming charges (the ideal of a roaming free Europe), coupled with competition from MVNOs and resellers as well as the emergence of mobile VoIP in the form of VoLTE (voice over LTE), Europe’s MNOs may find revenue and costs evening out within three or four years. Collaborative procurement schemes are one way to put off the fateful day.
Senior Analyst, Europe
For more information on these developments, see the separate reports:
Germany – LTE network strategies for 2011;
Germany – Mobile Market – Statistics and Forecasts;
Germany – Mobile Market – Mobile Data Services and Forecasts;
France – Mobile Market – Mobile Data Services and Forecasts;
France – Mobile Market – Statistics and Forecasts;
Europe – Mobile Data – Competition squeezing prices;
Europe – Mobile Market – Overview & Statistics.
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