OXFORD, United Kingdom-While the use of mobile communications in Europe continues to grow beyond everyone’s wildest expectations, the latest bid of $140 billion by Vodafone AirTouch plc for the Mannesmann empire has caused many a jaw to drop in stunned amazement.
This record-breaking bid has left the telecommunications industry searching for the reasons as to why this is happening and where it all may lead. Simple questions, but, unfortunately, the answers may not be as simple.
However, what appears to be emerging from the fog of this particular battle is a determination on the part of mobile operators to become much bigger players than just pure providers of wireless’ voice pipes. Most analysts are now looking upon Western Europe as almost a mature market for mobile voice services: penetration levels are reaching 35 percent to 55 percent or higher, revenues from voice services have started to plateau and competition on tariffs is on the edge of being self-destructive.
This potential scenario was envisioned some time ago by most mobile operators, while the more market aware have been searching diligently for the formula to ensure they could catch the next wave of consumer demand. Perhaps, not surprisingly, they saw the Internet as being the savior as to how they could generate more revenues from their customers by providing access to online information, e-mail and mobile e-commerce.
Some of the first evidence of the perceived value placed upon this new business model for mobile operators has appeared in Mannesmann’s defense against the hostile bid from Vodafone AirTouch. The company’s latest response has pointed, naturally, to “its standalone value,” matching the headline value of the present bid.
But of greater interest is the value it applies to its new services and technology investments that, it claims, increases its standalone value by an additional 50 percent.
This 50 percent extra value, which is carefully worded as upside potential, is placed by Mannesmann on its wireless data investments, Internet capabilities and mobile e-commerce plans. While the company will not provide the details behind these assets, its audacity at valuing them this highly must have been accompanied by the sound of jaws hitting floorboards.
However, while those outside the telecom industry watch in astonishment, others recognize the strategy being adopted by Mannesmann. An executive within a U.K.-based mobile operator commented that, “while the attention had been upon fixed-to-mobile convergence (FMC), this had now swung heavily toward Internet-to-mobile convergence.” The interest by existing operators pursuing this strategy can be seen by the number, well past the 100 mark, that have committed to deploy 2.5-generation high-speed data services. All of these are looking to gain marketing advantage and services revenue by offering an array of applications.
Chris Gent, Vodafone AirTouch’s chief executive officer, has made it clear that little will detract him from pushing ahead with developing wireless services. He believes the majority of voice telephony will be wireless in the future, wireless networks will become increasingly easy to build and integrate, and high-speed mobile data services will bring the Internet to traveling customers. To this end, and to counter Mannesmann’s allegation that Vodafone AirTouch brought no wireless data capabilities to the bargaining table, the company has rushed out an announcement that it immediately intends to deploy GPRS-based services in the United Kingdom, The Netherlands and Greece.
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Peter Bamford, chief executive for Vodafone UK, said that GPRS would allow the company to roll out e-commerce, wireless office and lifestyle services at a much faster rate. “This will not only allow our customers true wireless Internet capabilities for the first time, but also GPRS roaming, enabling them to benefit from continuous high-speed data services when they travel.”
This surge of interest in wireless data has been given further impetus by the overwhelming success being experienced by the Japanese operator NTT DoCoMo, the country’s largest mobile operator. Since it launched its i-mode wireless data service, which allows mobile Internet access at only 9.6 kilobits per second with a very restricted portfolio of applications, it has attracted more than 2.5 million subscribers in nine months. These users seem prepared to pay the extra $11.75 per month for the service, while making additional payments based upon the amount of data transmitted.
However, mobile data, for all its future potential, is not the single point of interest behind this flurry of merger and acquisition activity. The U.K.-based market research firm Analysys points to the increasing importance of international branding of mobile services. “Operators have no choice but to adapt to the growing importance of branding and the need to boost customer care as a means of reinforcing it,” said David Wilkins, a senior consultant with the company. He maintains that mobile operator Orange is the best example of a brand being rolled out internationally, with a presence in the United Kingdom, Switzerland, Israel, Hong Kong and Australia.
Several operators also have engaged in co-branding for new data services, for example, Sweden’s Telia with CNN. Within the Deutsche Telekom group, T-Mobil’s online banking service makes use of both the T-Mobil brand and that of Deutsche Telekom’s ISP/OSP T-Online, which already has a strong, established position in online banking.
The realization that international branding can add significant value to an operator has been seen by the recent alliance between the U.K. company Virgin and the mobile operator One 2 One of London. This venture was valued by one stockbroking firm at $2.25 billion, even before it had sold its service to a single customer, based on the strength of Virgin’s retail outlets and brand. Virgin manifestly has expertise and experience in applying its brand to sectors as diverse as the recorded music business, airlines and soft drinks, and so there seems no reason to believe it cannot be successful among mobile customers.
This factor, together with increased roaming activity by high-spending mobile users and a burgeoning mobile data market, are becoming powerful factors in the strategic directions for the major telecom operators worldwide. Wilkins claims “operators will increasingly be confronted with a stark choice-buy or be bought. As players jockey for position, old alliances will be disrupted and new ones formed. Operators will find that they are competing in some markets and cooperating in others, which will place new and challenging demands on their management.”
The recent highly public break-up of the Deutsche Telekom AG and France Telecom SA alliance could see France’s third-largest mobile operator, Bouygues Telecom SA, become a take-over target. Germany’s Veba AG (Dusseldorf) has said it wants to dispose its 17.5-percent holding in Bouygues Telecom, thereby opening the door for Deutsche Telekom.
However, Bouygues says that it wants to increase its position in mobile telecommunications and could force any purchaser to pay a high price. French industry observers have put a price of $16.6 billion, based on the per-subscriber value that Vodafone AirTouch has put on Mannesmann, on the mobile operator. But opportunities are fast disappearing within Europe and Deutsche Telekom, which has amassed a pile of cash for strategic acquisitions, has demonstrated it is not afraid to enter the game, earlier this year paying $10.8 billion for Britain’s One 2 One.
As one mid-sized operator commented, “Technology is presently the hottest sector, and there are more offers of finance than potential targets. There is the strong feeling that any sized deal could be done at present.”