Entries tagged with "Snapshot"
France Telecom targets North African market as part of new M&A strategy
Although briefly linked to Zain’s pan-African network sell-off last year, France Telecom’s new leadership now appears content with picking-off assets one-by-one as opportunities arise. Now that large-scale acquisitions have been ruled out, Meditel looks exactly the type of mid-tier emerging market investment that the operator is targeting for future growth. Moreover, Morocco is one of Africa’s more stable mobile markets and – as arch-rival Vivendi has demonstrated – one that is able to turn a profit. The country is also one of Africa’s most technologically advanced mobile markets, boasting a 3G customer base that is almost twice that of Nigeria, Africa’s most populous nation. Meditel’s former owners – Portugal Telecom and Telefonica – boasted of leaving behind a state-of-the-art (HSPA-based) 3G network when they exited Morocco in 2009 – though the operator has less than a million 3G connections to date (8 percent of its total). Meanwhile, mobile penetration in Morocco currently stands at around 82 percent – high in African terms – suggesting market growth could be slowing. Against this backdrop, France Telecom will be wary not to pay an overinflated price for its initial stake. If the deal is done, France Telecom is likely to move toward acquiring a majority stake in Meditel and rebranding it under the Orange brand.
Local operators struggling under regulatory, macroeconomic and debt pressures
The sudden deterioration of WIND Hellas’ financial situation shows, once again, the importance of taking a pro-active approach to addressing new trends and market opportunities in the industry. But the fact that the operator is now switching its focus to enhancing its brand awareness, switching to an added-value and customer-centric approach, investing in advertising and, most importantly, investing in “network development to bridge the coverage gap” might come a little late in such a saturated market. Since 2008, we have been warning that even though a reduction in operating expenditure was inevitable, mobile operators still need to maintain capex at normal levels – around 13-14 percent of total revenues – since a squeeze in capex could put some players at risk in the medium- to long-term. Between 2008-09, WIND Hellas reduced its mobile capex by 3 percentage points to 10 percent - and to 6 percent in 1H10 - well below the industry average. Now left with negative quarterly free cash flows, the operator cannot face its short-term challenges and is looking to sell its operation as a strategic alternative. Overall, we believe that Greece is an over-inflated mobile market due to the high proportion of inactive prepaid users counted in operators’ quarterly performances. The recent subscriber database clean-ups forced by regulatory initiatives are expected to bring reported market data back in line with actual market reality.
Sprint also steals the headlines in Q2 2010, but faces ongoing challenges
The highlight of the quarter was undoubtedly Sprint’s first headline connections growth in three years thanks in part to the launch of the high-profile CDMA/WiMAX HTC Evo device running on the fast-growing Android platform. The impact of the Evo can be seen in Clearwire’s wholesale connections growth, which increased by 595,000 during the quarter (compared to only 111,000 in Q1 2010). However, many challenges clearly remain for Sprint, including stemming ongoing iDEN connection losses and successfully implementing its multiple-brand prepaid strategy in a market that has become significantly more competitive in the first half of this year. The launch of Motorola’s i1, the first Android iDEN smartphone, should provide a fillip for its iDEN business but alone is unlikely to ease the decline in iDEN connections. Sprint will also face increased competition in the prepaid segment from TracFone’s Straight Talk service, which has recently expanded its wholesale agreements to offer devices from AT&T and T-Mobile. This will present a further challenge to Sprint’s unlimited Boost Mobile offering in particular.
Additionally, Verizon appears set to enter the ‘unlimited’ prepaid market following trials launched in selected markets in July. Verizon’s connections growth has been significantly boosted by wholesale connections in recent quarters primarily due to its partnership with TracFone’s Straight Talk. However, with Verizon’s Q2 2010 wholesale gains of 896,000 substantially outstripping those reported by TracFone (460,000 net additions across all of its wholesale brands), it appears that Verizon also benefited from successful arrangements with other MVNO partners. A likely factor for its move into the unlimited prepaid retail segment is increasing competition in the wholesale market following the loss of Straight Talk exclusivity.
These developments will also present a further challenge to value-centric T-Mobile’s retail business. The operator has continued with its recent struggles during the most recent quarter and its turnaround strategy remains unclear as does the operator’s upgrade path to LTE. Leap, on the other hand, has responded to a poor quarter by overhauling its plans (including rolling taxes into its pricing) and launching its first smartphone offerings. Leap also struck a MVNO agreement with Sprint to enable it to offer a nationwide service and provide new opportunities for growth. Leap’s rival MetroPCS has laid down the gauntlet by committing to launching LTE services by the end of the year, putting it in direct competition with number one player Verizon. For AT&T, who is not commercially deploying LTE until next year at the earliest, the continuing reliance on the iPhone leaves it vulnerable to the loss of its iPhone exclusivity agreement due to perceived issues with its existing network quality.
Fifty-eight networks upgraded to HSPA+ in the last 18 months
The news that the number of HSPA+ networks is set to surpass 100 globally reflects the fact that the upgrade provides a way for operators to potentially double the speeds on their HSPA-based 3G networks relatively cheaply and easily. The wide deployment of HSPA networks in most markets will mean that HSPA+ is likely to be the fastest network available to most subscribers for several years to come, especially as most operators are still waiting for LTE spectrum to be auctioned and allocated. Indeed, some operators without a firm migration path to LTE – notably T-Mobile USA – are deploying HSPA+ partly as a way to keep pace with rivals that are planning early LTE rollouts (Verizon Wireless in this instance). For others, investment in HSPA+ is simply a way of squeezing the most revenue from their existing networks, though operators will at some point need to figure out a way to differentiate HSPA+ and LTE services (other than data download speed), and define which coverage vs. capacity route they want to take depending on spectrum availability (urban vs. rural). These decisions will define future capex commitments and rollout schedules and could mean that LTE deployment will take longer for HSPA+ operators compared to those moving directly to LTE. Meanwhile, one major drag on subscriber uptake of HSPA+ is currently the lack of compatible handsets; while there are now over 1,000 HSPA devices available only a handful of these support HSPA+, and nearly all of these are dongles. T-Mobile USA is supporting its new network with an own-branded HSPA+ USB data stick (webConnect Rocket), but has said that it will launch one of the world’s first HSPA+ smartphones by year-end (believed to be an Android device from HTC). In the meantime, as Telstra is demonstrating, mobile broadband services (via dongles, datacards and embedded-laptops) will be the main business case for HSPA+ in the near term.
Global HSPA+ deployments
Source: Company data, Wireless Intelligence
Incumbents move to counter low-cost deals from new mobile players
For the new entrants, initial performance and subsequent investment will be scrutinised in light of their heavy capex outlays, particularly given recent tactics to boost an initial lacklustre uptake. WIND in particular has seen a significant increase in customer growth in the second quarter of the year, but at a cost of heavily subsidising customer credit and half-price unlimited tariffs for six months, which will prove unsustainable over the long-term, hitting profit margins. With crucial backing from the ever-energetic Orascom, however, the company is well placed to weather any initial hit in building a dependable brand. Meanwhile, incumbent Rogers is being attacked on two fronts. At the low-end of the market, Rogers is naturally the main target for the new WCDMA competition created by the newly-awarded spectrum, and is using new brands such as ‘chatr' - and the recent acquisition of MVNO Cityfone - to match WIND and Mobilicity's unlimited tariffs with the key advantage of existing coverage. It also faces trouble at the high-end from its national CDMA rivals, which are now able to offer the most desirable WCDMA/HSPA devices such as the Apple iPhone 4 and iPad, HTC Legend and Samsung Galaxy. This could potentially give Bell and Telus an advantage by sustaining device availability and ramping up network coverage and speed (Telus recently becoming the first to announce a jump to 42Mb/s speeds in 2011), while Rogers struggles to upgrade a larger, and older, footprint. The prospect of further regulatory intervention affecting operators' triple- and quad-play bundles (and pressure from Bell's foray into cable services) will continue to disrupt the Canadian mobile market moving forward.
