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Euro Alliances Get a Grilling

Light Reading
LR Mobile News Analysis
Light Reading
11/28/2003

Analysts have reacted skeptically to mmO2 plc’s efforts this week to further its Mobile Alliance agreement with new carrier members, expressing doubt at the general impact such alliances will have on the industry.

On Wednesday Rudi Groeger, chief executive of the group’s German subsidiary -- O2 Germany -- told Reuters that the carrier was in partnership talks with France’s third largest carrier Bouygues Telecom, as well as Cingular Wireless, AT&T Wireless Services Inc. (NYSE: AWE), and a number of Greek companies.

“Our focus is France, the U.S., and Greece because of the Olympics in 2004,” Groeger said. “The alliance board is talking to them and we will see when and if they will join.”

Any successful deal would add to the nine tier-two and -three carriers already included in the alliance, consisting of Amena (Spain), mmO2 (Germany, UK and Ireland), ONE Mobil (Austria), Pannon GSM Rt. (Hungary), sunrise (Switzerland), Telenor Mobil SA (Norway), and Wind Telecomunicazioni SpA (Italy) (see Euro Operators Form Alliance).

mmO2 isn’t alone in attempting to form a venture considered by many to be a defensive move against the global might of market leader Vodafone Group plc (NYSE: VOD).

Back in April, heavyweights T-Mobile International AG, Telecom Italia Mobile SpA (Milan: TIM), and Telefònica Mòviles SA also announced the formation of an alliance intended to simplify tariff schemes for customers and enable access to the same service on a global basis. Two months later Orange SA (London/Paris: OGE) joined the gang, intent on gaining financially through enhanced roaming revenues (see Mobile Trio Form Alliance and Orange to Gang Up on Vodafone).

The driving force in both cases appears to be an attempt by carriers to obtain economies of scale in order to compete more effectively with Vodafone -- the world’s largest network with a subscriber base of 80 million in Europe alone. The company has equity interests in 26 countries and partner networks in a further ten countries, and boasts a majority shareholding in 16 markets.

Despite each alliance’s efforts to narrow this gap, analysts remain highly skeptical of any immediate positive impact.

“Like the mini-skirt, they’re good for attracting attention but are not very practical,” comments Ovum Ltd. chief analyst Julian Hewitt. “We do not expect the alliances to achieve much.”

Hewitt argues that probable failure is imminent for three reasons. First, the intent is excellent but the practicalities are daunting. “Even with Vodafone there are MMS compatibility issues across its operations because of different platform vendors and legacy systems. Multiply this by 9 and take away the ownership power that Vodafone wields and it will become a nightmare to implement anything beyond simple services. In more complex areas the costs will outweigh the benefits.”

Second, Hewitt states that in order to obtain real economies of scale on new services the members are going to have to relinquish control of certain applications. “For example, it would be better to develop a single shared content delivery platform for the group than to invest in one each. But the risks involved in not having control of such a platform will be hard to take.”

Third, the Ovum man points out that the track record of telecom alliances is “terrible,” adding that “a 3-legged race is always slower than a normal sprint.”

Meanwhile IDC’s senior analyst Paolo Pescatore claims that each member is unlikely to feel at total ease with its partners. “Vodafone has done a tremendous job of integrating its whole group to ensure they reap the synergies of the group, but these other players are having to partner with their own competition. It is a strange situation for them to be in.”

Both alliances have also failed to announce specific timescales for service launches -- a fact noted by Sarah Randall, mobile communications analyst at Gartner Inc.. “I am quite skeptical about all this,” she comments. “There has been a lot of talk about intent but no results appearing as yet. When are we going to see results?”

— Justin Springham, Senior Editor, Europe, Unstrung

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