T-Mobile and Orange move to upset UK status quo

Emeka Obiodu and Steven Hartley, senior analysts with Ovum

UK: UK mobile network operators T-Mobile and Orange have announced exclusive negotiations to combine their UK operations into a 50:50 joint venture. Based on December 2008 figures, the combined entity would have 28 million subscribers and 37 percent market share.

Creating a new market leader
The first thing to note about today’s announcement is that it is for exclusive negotiations. The deal is unlikely to be signed until the end of October, with completion expected in the first half of next year.

Furthermore, on this morning’s briefing call both parties were keen to stress that the two brands would operate separately for a further 18 months, with a new brand not expected to launch until 2012 (maybe not the best idea when the Olympics come to London and global branding efforts to thousands of roamers are undermined). Therefore, there is still a long way to go and in the short term the deal will change very little.

However, assuming the deal goes through without a hitch, it does realign the UK competitive landscape. To date the two separate operators have struggled to close the gap on Vodafone and O2. The combined entity would not only become the clear market leader, but the synergies (through network integration, marketing and distribution, and other efficiencies) are promised to be £620 million by 2014, thereby improving profitability immensely.

It is important to remember too that Orange’s fixed broadband assets are also included in the deal, so the combination would enable T-Mobile customers to receive integrated offerings. This should not be overstated, but for T-Mobile the lack of a fixed strategy was leaving it somewhat exposed to future trends in the UK.

Huge challenges for Vodafone and 3
The T-Mobile/Orange merger sets the stage for a total transformation of the UK mobile market and poses the question of the response from Vodafone, O2 and 3. Unsurprisingly, 3 will be the most affected as the merger cuts it adrift in the market.

With a market share of less than 6 percent it would become too small to compete realistically and would have to reconsider its presence in the UK, either by becoming an MVNO or exiting the market.

For Vodafone, this merger is a blow as it relegates it to third in its domestic market. This will dent the group’s ego, and Vodafone must take steps to ameliorate it. Even a takeover of 3 will not be sufficient. However, given the recent cosiness between Vodafone and BT, this might just become the prompt for Vodafone to tie-up with BT and take the initiative in its domestic market as an integrated telco.

O2 and Virgin Mobile will be less impacted. O2 will lose its market leadership, but it has successfully challenged the market leader before, both in the UK and Germany. Therefore we do not see any drastic response from it. Virgin Mobile’s involvement will be limited to where its wholesale deal resides. If regulators compel T-Mobile/Orange to spin off the deal, then Virgin Mobile will get ready to work with a new partner.

Ovum expects regulators to approve deal
While the 37 percent market share of the combined Orange/T-Mobile business looks big, comparisons with Europe make it look reasonable. Market leaders in Belgium, France, Germany, Italy, the Netherlands, Spain and Portugal have similar shares. Indeed, regulators will look at a broader definition of dominance when approving the deal.

Regulators will have to look at the Virgin Mobile wholesale deal with T-Mobile and T-Mobile’s network-sharing deal with 3. We expect the Virgin Mobile deal to be decoupled –- Orange/T-Mobile tacitly suggested this by separating out Virgin Mobile’s customers in their subscriber data.

Regulators will likely encourage the continuation of T-Mobile’s network-sharing deal with 3, unless 3 becomes a takeover target itself. Finally, negotiations about spectrum re-farming are unlikely to be solved with this merger and the expected government plan should still materialise.

Ultimately, as long as regulators impose the necessary safeguards, we do not believe the deal is bad for consumers. Competition is good for consumers, but with five major players the UK operators were competing themselves to death and badly needed to consolidate.

The UK’s operators face many challenges, including recouping the billions invested in 3G; expanding and upgrading network coverage; and getting ready for 4G –- and all this without seeking any government subsidy. Therefore, something needed to be done.

Google Latitude: Operator business case heading south?

UK: Comment from Jeremy Green, Practice Leader & Michele Mackenzie, Principal Analyst, Ovum.

Google is stealing a march on operators
Location has long been touted as one of the key enablers which should be core to both the operator’s own direct-to-consumer (D2C) service offering and more recently as a network enabler which operators could open up to third-party application developers and preferably at a premium.

However, operators have dragged their heels for so long that device vendors such as Nokia and Internet players such as Google have stolen a march on the operators, launching their own location-enabled applications and building location platforms which allow them to enable third-party applications and build developer communities to serve their own user bases.

Google is in the process of building a location network across its markets and this is largely independent of the operator’s cooperation (although it is dependent on the operator refraining from disruptive action).

For most operators, it is too late to develop location awareness as a fully fledged premium service. And it was becoming increasingly unlikely that they would succeed in offering location as an enabler to third parties.

But Vodafone’s recent announcement that it will open up its network APIs to the developer community puts Vodafone at least back in the picture. Vodafone is one of the few operators with the size and scale to take on some of the other contenders. But is it too little too late?

Neither side ready for a fight
Google’s location platform uses a number of data criteria and location solutions in order to pinpoint the user’s location. It takes the device’s dynamically assigned IP address in order to determine the user’s country information.

It then identifies the cell tower which is serving the user in order to determine further the location of the user; this is done by the Google Maps application itself, so that the device can calculate its own location without any further information from or calculations by the operator’s network.

Google has built its own database of cell tower locations and cell IDs, information which is collected through active ‘war driving’ and its mapping application and fed back to its database. Google Latitude also uses the network of WiFi access point locations in order to determine the user’s location, and lastly the GPS functionality on the mobile phone.

Google’s service is to some extent dependent therefore on the operator’s infrastructure. At present, this would not be an issue for most operators who are seeking to drive further data traffic on their networks and Google’s applications are contributing to this.

But for those operators who are providing their own location services either as a D2C offering or business-to-business (B2B) offering, Google may well be undermining their business case.

The G1 Android phone offered in the UK by T-Mobile does not support Google Latitude, even though Google Maps is available, and G1s offered by other operators do support Latitude. This is allegedly because T-Mobile UK has requested that the feature is disabled, citing privacy concerns. This suggests that the operators are not prepared to go down without a fight, and that Google is still sensitive to operator concerns.

Advertising is key to success again
In line with its core business model of advertising, Google is likely to focus on monetising Latitude through advertising revenues, mainly local advertising. It may look at how it could generate revenues from selling contextual information on its users, presumably to advertisers. This will have to be done on an aggregated level in order not to compromise the data privacy of its users.

We believe that Google will make its location tools, including APIs, available free of charge to developers on the Google platform in order to drive usage of the Web.

These developers will therefore be able to query Google’s database of users’ locations, subject to the privacy constraints set by the users themselves and stored on the platform; we think that Google does not plan to charge for this.

It’s worth noting, though, that Google’s location server (which makes this possible) is not a Gateway Mobile Location Centre in the sense intended in the architecture for location services standardised by the mobile industry almost ten years ago. This too may be an indication that the operator-centric model for mobile location services is past its sell-by date.

Sony Ericsson, T-Mobile launch W705 Zeemote edition phone

LONDON, UK: Sony Ericsson announced a partnership with Zeemote, the recognised leader in wireless controller technology and products for mobile devices, to launch a console-style mobile gaming experience in the UK for the first time.

The Sony Ericsson W705 will be exclusively available on T-Mobile, bundled with a Zeemote JS1 Bluetooth Mobile Gaming Controller and pre-loaded with the Fast & Furious Zeemote Ready game.

The compact and comfortable controller features a highly responsive thumbstick and four action buttons to provide users with a truly fun and immersive mobile gaming experience.

Fast & Furious, published by I-Play, boasts stunning graphics and addictive game play, bringing to life the sheer speed and intensity of real life street racing behind the wheel of over 32 muscle, import tuner and exotic cars.

"Sony Ericsson prides itself on bringing intuitive and entertaining technologies to its consumers. We are delighted to be giving them the opportunity to experience the award winning Zeemote JS1 Bluetooth Mobile Gaming Controller in combination with our W705 state-of-the-art handset," said Dave Hilton, Marketing Director Sony Ericsson UK and Ireland.

Ernie Cormier, CEO, Zeemote Inc, added, "We are pleased to partner with Sony Ericsson and T-Mobile to create the world’s best mobile gaming experience for consumers in the UK through the feature rich W705 Walkman phone bundle featuring the Zeemote JS1.”

Combining sleek design and best-in-class sound quality with super-fast HSDPA Internet access, the Sony Ericsson W705 Walkman phone is a fantastic all-rounder. The elegant and compact slider comes with a gorgeous 2.4” screen that is perfect for gaming, a 4GB memory card (expandable to 16GB), letting you store up to 3,900 songs and auto rotate (switches from portrait to landscape) functionality.

The 3.2 megapixel camera allows users to capture photographs and video for easy upload via 3G or Wi-Fi to their favourite social networking sites.

The Zeemote JS1 Wireless Controller is compact, ergonomically designed to fit comfortably in the hand and easily connects to the Sony Ericsson W705 via Bluetooth for hours of mobile gaming fun with the Zeemote Ready version of the Fast & Furious from I-Play.

In addition, the Zeemote JS1 is compatible with all genres of mobile gaming and the Sony Ericsson W705 comes pre-loaded with 5 additional Zeemote Ready Demo Games, including Powerboat Challenge, Rally Master Pro, and Galaxy on Fire from FishLabs plus Tom Clancy’s H.A.W.X and Prince of Persia from Gameloft.