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European Research Notes |
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Wireless/Mobile Europe, Global Regulatory Strategies
by Declan LonerganEvent Summary
On September 26, the UK Telecommunications regulator Oftel published the conclusions from its latest review of the UK mobile communications market. Its findings and recommendations covered a wide range of issues related to competition in the service provision market. In summary, Oftel concluded that the UK market is relatively competitive, and consumers are generally getting a good deal. However, it did identify some areas where regulatory intervention will be required, most notably in controlling the cost of calls to mobile phones.
Market Impact
This was a real "good news/bad news" story. First, the good news. Oftel found that:
- Retail price competition in the UK is healthy (30% reduction in costs since January 1999).
- Competition is increasing, largely due to the emergence of Orange and One 2 One as strong players.
- Consumers feel they are getting a good deal (90% satisfaction rating).
- It will not be necessary to introduce controls on charges for mobile-originated calls.
- Oftel will remove the obligation for BT Cellnet (now O2) and Vodafone to offer airtime to independent service providers. In the future, market forces alone will drive any wholesale agreements.
Then there was the bad news:
- Vodafone and BT Cellnet continue to charge more than they should in an "effectively competitive" marketplace. Their status as players with "significant market power" will therefore be retained.
- Wholesale charges for calls to mobiles are still uncompetitive and price controls will remain in place. These are estimated to reduce the operators' revenues by almost US$900 billion over the next four years.
- To promote competition, mobile operators will also be encouraged to 1) reduce the practice of SIM-locking, 2) provide clearer information to users on service charges, and 3) review international roaming charges—the subject of a separate EU inquiry.
Conclusions
It could have been worse. With the notable exception of the cost of calls to mobiles, Oftel considers the UK mobile industry to be largely competitive. For UK consumers, the capping of calls to mobiles is expected to save them almost US$1.2 billion over the next four years. This is good news indeed. For the operators, Oftel's conclusions shouldn't come as a great surprise. Charging for call termination has been something of a cash cow, and some intervention was long overdue. On the whole, with this latest review, Oftel has demonstrated a mature approach to mobile market regulation. It will allow the market to evolve with minimal intervention, but it is clearly still willing to intervene where necessary.
Internet Strategies Europe
by Scott SmithEvent Summary
On September 24, Boots, the largest drugstore chain in the UK, announced its plan to close its online photo processing venture, bootsphoto.com, which it launched in mid-2000 reportedly to the tune of over US$13 million. It claims to have lost US$10 million on the venture this year alone, and will have to pay almost US$15 million in contract termination costs to Energis Squared, the Web-hosting unit of European telecom Energis. Boots claimed a lack of demand for the service in its current form, which allows viewing of online albums and photo printing.
Market Impact
The impact on the online photo processing market is likely to be minor, though one wouldn't want to try to raise venture capital for this business in the UK at the moment based on this. Additionally, bootsphoto.com's pricing wasn't competitive on the open market of the Web, charging up to 50% more than Kodak for prints. However, the secondary fallout, that of a large brand name canceling a new service, and leaving the hosting company holding the costly infrastructure, is important. It points to the high risk involved in creating expensive custom infrastructure and looking for a quick ROI. Energis seems protected in the short term as it benefited from the termination clauses in the contract. However, it will have to find another way to monetize expensive storage systems assembled for this venture.
Recommendations
- The days of ego- or brand-driven custom infrastructure deals are coming closer to an end now that more Web-hosting companies are focusing on developing scalable, reusable infrastructure. Both the service provider and the customer benefit from these developments, though they don't yet satisfy all of the custom needs of users. Both sides will have to give more to reach a mutually beneficial point for the market—common platforms that scale yet provide some flexibility.
- In the current climate, service providers must pay a lot more attention to self-preservation and include not only strong termination clauses in contracts, but resist encouraging customers to build grandiose Web businesses simply to show a good reference account.
Wireless/Mobile Europe
by Philip TaylorBackground
On Monday September 24, two of the most recognizable names in the location-based applications market, Canada's AirFlash and France-based Webraska, announced that they would be merging their operations. The new entity will retain the name Webraska with the AirFlash brand to be phased out.
Market Impact
AirFlash and Webraska are two of the most aggressively marketed operations in the European mobile applications space. Both had been highly active in proselytizing the location services vision to mobile operators and, unlike many, had contract wins under their belts—Webraska with SFR (France), Proximus (Belgium), KPN Mobile (Holland), Vodafone Airtel (Spain), TIM (Italy), and Orange (Switzerland); and AirFlash with E-Plus, Viag Interkom (both Germany) and Orange (UK). Their union indicates recognition by both parties that the firms were evenly matched in competitive tender.
Recommendations/Conclusions
- Consolidation should benefit AirFlash and Webraska. With operator contracts being split between the two, a combined venture should achieve clear operational efficiencies. Furthermore, new Webraska should be able to generate additional leverage on the back of its enhanced credentials in the location applications space.
- The two firms have broadly complementary product portfolios. Historically, Webraska has focused principally upon mapping and in-car navigation applications. AirFlash by comparison has focused more upon the mass-market space and has developed its reputation as a location enabler and aggregator for smaller content developers. Content developers should benefit from new Webraska's increased size, contract wins, and influence with operators.
- The Yankee Group stated in its April 2001 Wireless/Mobile Europe Report "Location-Based Services: Positioning the Mobile Internet for Success in Europe?" that "the positioning space is not as crowded as many perceive it to be, vendors nevertheless face an increasingly competitive market where early contract success and aggressive promotional activity will differentiate those who succeed from those who fail." Both AirFlash and Webraska promoted themselves more aggressively and had more contract wins than anyone else in this space. Their chief competition now comes from location gateway/server/middleware players such as CellPoint and SignalSoft, which have taken an increasing interest in developing applications expertise.
Convergent Communications Europe
by Hector DonisEvent
Spain's incumbent operator, Telefonica, for the first time opened up part of its local lines infrastructure in Spain, with the activation of lines leased to rival operators from an exchange in Madrid on September 18. The first unbundled site is located in Delicias, a largely SoHo neighborhood of the Spanish capital.
Market Impact
After a long series of trials lasted all summer, the effective unbundling of the first Telefonica exchange will allow operators to lease the loop from Telefonica for US$10.50 (€13). Of the twelve operators interested in competing in the local loop, four have already rented space in the first site: Retevisión, Uni2, Jazztel, and Grapes Comunitel. The introduction of competitive operators in Telefonica's last mile is the last step toward effective competition in fixed services.
Conclusions/Recommendations
- Unbundling in Spain is taking place almost ten months after the country's communications regulatory authority, the CMT, approved regulation opening the last mile to competition. This tardiness is a consequence both of CMT's weakness and of Telefonica's own foot dragging.
- While the process of liberalization of the local loop is finally beginning, effective competition is still months away, largely because Telefonica has not yet outfitted most of the sites requested by alternative operators to house their equipment. In fact, 96 out of 100 sites that competitors are still seeking access to required structural modifications.
- Uncertainties surrounding local-loop unbundling in terms of timing and pricing have taken a toll on competition to Telefonica. Of the list of 900 sites made available under ULL guidelines, 336 were initially requested in June 2001. However, operators have now withdrawn from 236 of them, either because of mounting debt levels or because they change their business plan in the meantime.
Convergent Communications Europe
by Hector DonisEvent
Telia announced on September 18 that it sold its Spanish service provider, Telia Iberia, to ONO, the brand name of Cableuropa. Telia Iberia was established in 1999 to offer IP services to the Spanish business market through the infrastructure once belonging to Unisource. The cost of the transaction has been valued at cool US$2.8 million (€3 million).
Market Impact
With this purchase, ONO adds a corporate services division with 60 employees and 300 customers including 12 telecommunications operators and 10 Internet content providers to its already existing base of 4,000 business customers. While the price paid for Telia Iberia is relatively small, the move gives ONO an opportunity to bolster its portfolio of voice and data services to Spain's large and medium businesses.
Conclusions/Recommendations
- The divestment of Telia Iberia by its parent company, Telia AB, signals the Swedish incumbent's efforts to streamline its international operations, in which it is giving priority to its Nordic and Baltic activities.
- ONO's acquisition signals more than an expansion of the cable operator into the business communications market. It also reveals that the company is readying to compete across Spain regardless of the regional constraints imposed by its license, such as the cities of Valencia and Santander. Competitors such as Jazztel and BT España should beware.
- With the purchase, ONO and Telia become closer partners, as the Spanish cable company will continue to offer its clients access to Telia's services and international network spanning across Europe and the United States.
Convergent Communications Europe
by Hector DonisEvent
Italy's Communications Ministry confirmed on September 18 that it is reviewing a plan to split the country's incumbent network from Telecom Italia. The decision is not considered imminent, but the Ministry said it is looking at this together with other options to promote more competition in the fixed telecommunications markets.
Market Impact
The possibility of separating incumbent networks from its services has been an idea circulating for some time, but remained confined to theory rather than practice. The current position of the Italian Communication Ministry, however, has breathed new life into this possibility. According to the Ministry, an independent network would allow service providers to save resources on network rollout and focus exclusively on competing with services. The operator of the network, instead, would reinvest in infrastructure of those revenues generated from its shared usage. This would solve the asymmetry in competition existing today with a liberalized services sector coexisting with a quasi-monopolistic network owner.
Conclusions/Recommendations
The debate in Italy over the issue of competition highlights the lack of any access infrastructure alternative to Telecom Italia, which might justify its intensity. Cable networks have seen only minimal deployment in the past, most of it put in the ground by the incumbent, while LMDS licensing has not taken place yet. This leaves everyone dependent on the only national network available. However, the difficulties in moving from theory to practice on the Ministry's plan still stand.
- The time for seriously considering the separation of the incumbent's network should have been years ago, during the wave of privatization in Italy. Now that the incumbent is publicly traded, financial markets will remain a formidable barrier to any change in this direction.
- Today, Telecom Italia is still considered a national champion, a vital contribution to the country's economy and employment. Its network is an integral part of its core business and its sale would no doubt seriously damage many other aspects of its operations.
- The mistry's statement may be intended to put pressure on Telecom Italia's new owners to make unbundled local loops available to compenititors on better terms. In Italy, as elsewhere in Europe, unbundling has gone very badly, and other ministries could follow where Italy has led.
The Yankee Group would like to first and foremost extend its deepest sympathies to those affected by the tragedies of Tuesday, September 11. Clearly, we have all been affected by what has happened in New York, Washington, D.C., and Pennsylvania. As we all attempt to rebuild and recover, the Yankee Group felt it would be prudent to analyze some of the business implications of these events. Many businesses are grappling with collateral damage from the attacks and their disaster recovery plans are being tested. Additionally, communications providers that experienced network damage and outages are struggling to bring services back online. Companies that were not physically affected by the attacks are re-evaluating systems and contingency plans to ensure that they are adequately prepared in the future. This free report provides our recommendations to businesses and service providers in the wake of recent events.
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Online Utility Billing Gaining Consumer Interest
EISv3n11, Report, September, by Margo DeBoerSecure Mobile Commerce
MCSv1n7, Report, September, by Francesca MabarakInside Tiscali: From Acquisitions to Consolidation
ISEv3n12, Report, September, by Hector DonisLatin American Multinationals, Part 2: Network Characteristics and Traffic Patterns
CCLAv2n13, Report, September, by Ignacio PerroneWebcasting: Cashing in on Radio's Revolution?
MESv5n13, Report, September, by Ryan JonesIPv6: Addressing The Needs Of The Future
ENBAv2n11, Flash, September, Zeus KerravalaThe Future of Analytics and Marketing Automation, Part 2: Post-Bubble E-CRM Marketing and Technology
CRMv3n10, Report, September, by Robert MiraniVicissitudinous Viscera: The New Importance of Corporate Communications
CMSv5n13, Report, September, by Jeremy DepowLucent Puts Kenan on the Block: Back to the Future
TEBv2n11, Report, September, by Sanjay Mewada, David Hawley, Paul Hughes, and Lisa CebolleroBack to Table of Contents
October 4 2001
Long Live Layer 2: The Market for Carrier-Class Multiservice Switches
A Carrier Convergence Infrastructure Audio ConferenceOctober 5 2001
Networks, Devices, Service: The Connected Home Opportunity
A Consumer Market Convergence Audio Conference
October 12 2001
Global Infrastructure Capital Expenditure and Vendor Positioning
A Wireless/Mobile Technologies Audio Conference
October 16 2001
Key Regulatory Issues in the Communications Sector
A Global Regulatory Strategies Audio ConferenceTo Register, to Get More Information, or
for the Complete 2001 Audio Conference Schedule, Please Check Our Web PageBack to Table of Contents
The Yankee Group's signature conferences provide a real-time opportunity to explore the technologies transforming the information technology, media, telecommunications, and wireless marketplaces. Our exclusive and interactive forums provide the ideal setting for Yankee Group analysts, together with industry leaders, to discuss and define the future of technology, business, and strategy.
Join Us for One of Our Fall 2001 Conferences
Mobile.Net 2001: Mobilizing the Enterprise
December 4–5, 2001 - New York, New YorkWirelessly enabled mobile devices are set to transform productivity in the workplace. Low-cost industry-standard terminals, such as PDAs, connected to next-generation wireless networks will provide the platform for innovation and the deployment of a plethora of new applications and services. These corporate deployments will be ROI-driven and internally funded, unlike recent mobile Internet initiatives driven by unstable commercial returns and scarce venture funding. This conference will identify the winning players along the complex value chain for delivering wireless connectivity to the enterprise. Yankee Group analysts will also present the most successful business models for the enablers, intermediaries, and service providers in the Mobile.Net. A shakeout has already begun. If you need to know who has the strongest staying power and what are the factors for survival, partnership, acquisition, and leadership, then don't miss the Yankee Group's Mobile.Net 2001.
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Yankee Group Research Notes was prepared by the analysts for use by its clients. These analyses supplement the research available through the Yankee Group Planning Services. For more information please call the Yankee Group. Phone: +44 (0) 20 7307 1050; e-mail: euroinfo@yankeegroup.com.
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