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Thursday, May 04, 2006

EU Regulation on Cross-Border Products

If Vodafone has a huge Pan-European Network, especially when compared to its’ rivals then why does it not exploit this power as a competitive advantage?

Flashback to April 2000, when VOD bought Mannesmann, there was a wave of complaints to Mario Monti, the EU commissioner at the time that VOD would be able to launch Pan-European services which the other operators would not be able to replicate. What is interesting is that these services, included not only the services that were available at time, such as voice roaming, but also included services that were not available at time such as location based services and corporate LAN access.

The EU also decided that VOD did have a dominant position in any of the services, but could enjoy a time-to-market advantage, because of complexities of negotiating deals for the other operators. In addition to the sale of Orange, Vodafone also undertook for a period of three years to offer the “same price & structure” to competitors if Vodafone lowered its’ Roaming charges.

In other words, Monti nullified any competitive advantage for Vodafone for three years in developing cross-border products & services. It is also interesting that the other operators complained that VOD would become dominant in buying handsets and the competitive advantage was discriminatory, which the commission disagreed with. The complete EU Vodafone/Mannesmann Ruling is here.
It is hardly surprising then that Vodafone did not launch the Passport product until May 2005. Although, the product targets only voice roaming charges and undoubtedly brings down the charges in a lot of markets, it can hardly be called a cross-border product, since the Pricing, Terms & Conditions vary by country.

Now, we have an ongoing investigation from the EU in roaming charges and the EU seems to now want to get rid of them:
• The new EU regulation should in any event address inter-operator tariffs (wholesale prices). The EU regulation would ensure that operators do not charge operators from other countries substantially more than the actual cost.
• To ensure that operator savings at the wholesale level are actually passed on to the consumer, the Commission sees also a need for regulation at the retail level.
• The new EU regulation could in particular eliminate all roaming charges for receiving a call when travelling abroad in the EU.
• In addition, for calls made while travelling abroad in the EU, the new EU regulation could introduce the “home pricing” principle. A mobile customer travelling abroad in the EU would always be charged only the prices that he is used to paying in his country of residence: he would either pay a local tariff when making a local call, regardless of where he is travelling in the EU (e.g. for calling a cab while travelling in Madrid); or a normal international tariff for calls made to EU destinations, regardless of where he is travelling in the EU (e.g. for calling the family back home while on holidays).

It does not take a genius to conclude that everyone from the largest to the smallest mobile operator will object to these principles. Basically, the EU wants to abolish roaming charges and regulate the wholesale market, presumably for call termination.

The main problem I have with the role of the EU is that they have reduced the game from a market-based approach to a lobbying-based approach. The mobile companies will now spend fortunes trying to get the legislation created in a way friendly to them. This nonsense has gone on from the beginnings of the creation of pan-European operators.

The difference in the USA is stark. After the creation of Verizon Wireless in 2000, local calling plans and tariffs immediately become national plans for the major networks. This is despite the fact that the big networks have patchy coverage across the States and has only been possible with individually negotiated roaming deals with regional players such as Alltel. Small local companies still exist today and offer local calling plans only with roaming options.

My own view is that it is the fault of the EU that cross-border products have not been developed as opposed to the operators.

I have been thinking of what I would do in Vodafone’s position. Undoubtedly, they could quite easily abolish roaming charges on-net. This would cost a large amount of revenue and would almost certainly need agreement with the Partners networks. The potential benefits of having larger call volumes and more customers are largely theoretical. However, with the introduction of the Passport scheme, Vodafone will have now been collating data for around 12 months of the price elasticity and reaction to marketing efforts. It will be extremely interesting to see the adjustments, if any, Vodafone make to the Passport scheme for the coming Summer European Holiday Season.

However, the fear of excessive regulation will also be there for Vodafone. If they are too aggressive, many of the other operators will complain and get the proposed legislation amended in their favour via the wholesale tariffs and open-access.

Vodafone is walking on a tightrope and its’ current position is extremely difficult especially when the stock market is putting pressure on it to prove the benefits of scale.

Tuesday, May 02, 2006

GDP view of EuroVODLand

A population map can be deceptive, perhaps we should look at the GDP by country?


When you look at the statistics by country GDP if is obvious that's VOD's coverage is even more impressive than population coverage or raw maps.


My interpretation of the detailed statistics are that the biggest three potential deals are:
i) buy Vivendi out of SFR;
ii) buy Verizon out of Vodafone Italy, which Seidenberg referred as Omnitel today as no doubt a further subtle wind-up; and
iii) do a deal with Alfa about becoming their partner in Russia & the Ukraine and helping Alfa buy Telenor out of the venture.

Population View of EuroVodLand

A pure map can be deceptive, perhaps we should look at the overall population?


The detailed statistics behind the pie chart:


Pan EuroNetworks

The network to beat all European networks is the Vodafone network, which has been built up since 1989 when VOD made its’ first European foray with a 4% investment in what would eventually become SFR in France. It has accumulated the stakes through initial investment, stake increases, mega-deals, minority squeeze-outs and invented a new concept - the partner network.

Vodafone Europe 2006
The gaps in the networks basically consist of four parts:
i) Parts of the ex-Yugoslavia. Serbia and Bosnia may be solved quite soon with the forthcoming auctions – a win for Telekom Austria would be nice in PlanetVod. Who knows about Macedonia, Kosovo and Montenegro?
ii) The Holdouts – Norway & The Slovak Republic only have 2 operators-none of which seem to particular allies of PlanetVod.
iii) The Principalities. Small states such as Monaco, Gibraltar, Andorra, Jersey, Guernsey and Isle of Man. All of which are probably too small to support more than one operator and a visit from the VOD Executive would probably eat all partner profits for the next 12 months.
iv) The Wild East – Even if there was an opportunity for an investment would anyone be able to shoulder the political risk?Mind you, Telenor's so called partner in Russia/CIS are rumoured be looking for a new partner

So, for the foreseeable future, I can’t see VOD completing its’ European Network. In fact, with recent events such as the sale of Sweden and both Swisscom & Belgacom stating they would be quite happy to buy VOD’s stake, I can see PlanetVod shrinking as the more likely outcome.

The recent buy-in to Turkey, sell-out from Sweden and least we forget the partner network deals in Bulgaria and Latvia doesn’t seem to have moved the share price much. The deal in Sweden will face the Law of Unintended Consequences and be the starting point for the complete break-up of the group.

VOD 1yr Chart with Comments

The problem seems to me that it is extremely difficult to work out what are the synergies of having a pan-European network. Nothing tangible has ever been stated and therefore in my opinion no value can be attached.

Therefore the only thing left is to compare the strategy and performance of Vodafone against its' major European competitors: T-Mobile, Orange, Telefonica, Telenor & TeliaSonera and the other big pan-continental network, Verizon Wireless. This is the subject for tomorrow night.

Monday, May 01, 2006

Structure of Blog

While not wanting to commit to anything, I think have stumbled upon a workable format for Telebusillis.

I like the idea of generally only posting a single entry per day.

I also like the idea of posting a series of articles on a related theme. For anyone who didn’t notice last weeks theme was “Mobile 2.0”. This week is going to “Pan European Networks – Are they worth the hassle?” Next week, I’ve provisionally penciled in “The second rush for Africa”, but I might have a rethink during the week.

I also like the idea of do something different on Friday – after all it is the start of the weekend. I’ll try to keep the theme of posting on someone or some company who I feel has an interesting history in the mobile world.

Saturday and Sundays really are days for home projects and rest. So, anything can happen then.
I hope everyone is enjoying the blog.

Cleaning Up Content Distribution

Currently, I am totally disgusted with Chris Eubank and through his actions I think the mobile operators are cruising in totally the wrong direction in the content field. The end-game will be a heap of negative publicity and killing-off the content industry before it really gets started.

To recap, the early 1990s was a purple patch for British Boxing, especially in the Super-Middleweight division where there were three world class boxers all with different styles. There was Nigel “The Dark Destroyer” Benn, who was super-aggressive and seemed to punch even harder when someone had hurt him; there was Chris Eubank who a fantastic complete all-round boxer and was so cocky and pretentious that he immediately became the person that everyone hated; and there was Michael Watson a real Boxing technician, classical in his approach and loved by the “boxing” community. Of course, it all became as much pantomime as pugilistic showdown.

In the late summer of 1991 in front of packed White Hart Lane and 14 million on ITV, Chris Eubanks met Michael Watson for the second time. Over 12 rounds probably the greatest fight ever in British history played out and in the final round the referee stopped the fight. Chris Eubanks had a pyrrhic victory, Michael Watson collapsed into a coma and the TV screens went blank and.

Michael Watson lay in a coma for the rest of the summer, had several brain operations and has never recovered to this day. Chris Eubank, the ultimate self-publicist, carried on being the pantomime bad-boy even after the end of his boxing days. For millions of viewers, I’m sure they had the same guilt ridden complex that I had developed: I had spent 1 hour of my life, literally, watching someone getting their brains bashed in and enjoyed it. Brain Barwick (yes that one), the ITVs head of sport placed the TV images on embargo and the fight has never been seen again on TV and never has a DVD been released.

Michael Watson was back in the news in 2003, when he showed his amazing courage and determination by completing the London Marathon in six days. Chris Eubank was right there by his side. Last year, Chris Eubank was declared bankrupt by the Inland Revenue who claimed £1.3m.

Last week, Chris Eubank released a video of the fight from his website for £10. The mechanism for payment was via a mobile aggregator called Activefone who provide the distribution to mobiles or PC, payments gladly accepted via. Reverse SMS billing.

My points are:Why are the mobile operators letting their pipes to be used for this type of content?Whatever happened to the rating system? I suspect you can download whatever age you are.Why did Eubank choose this payment and distribution method over all the others available?

I’m sure if we asked the phone operators, they will point us in the direction of Activefone – totally avoiding responsibility. However, does the biggest retailer of DVDs stock the product? No. Does ITV still distribute the product? No.

I think the mobile operators as distribution channels and payment collectors have to realize their responsibilities.

I remember the Jamba - Crazy Frog episode and the end result. Ultimately, the industry has suffered.

My real thought is that the Mobile Operators themselves should be policing what is going on: they are not and are instead pursuing a strategy of ostrich-like short term gain sacrificing the long term future.