Spain's New Entrant Faces Hostile Conditions

The Spanish market is now over 100% penetrated and a fourth network operator, TeliaSonera's "Yoigo" has just launched as a new competitor, last Friday 1st December 2006. This is either the act of a foolhardy management or a sign that 100%+ doesn't imply any kind of barrier to entry or any real degree of maturity. What kind of market environment does the new entrant face?

Between them, the three incumbent operators have 45.9m customers. According to the US Census Bureau (the figures used by The Mobile World) the population of Spain is just over 40m, implying penetration of over 113%. TeliaSonera's presentation to investors used a figure of 44.1m, which still implies 100%+. Growth is slowing, with only 613k new connections in the last quarter, against 952k this time last year and 1.2m in the June quarter, the period following TeliaSonera's announcement that it intended to revive its formant 3G licence.

Like Hutchison 3G in the UK and Italy, the new operator has no GSM spectrum so is only offering 3G. It has a national roaming deal (with Vodafone) which will give it high quality coverage from day one and, like Hutchison, it will be looking to make an impact through low tariffs and in particular low voice prices.

The difference is, of course, that when Hutchison launched in 2003, penetration in Italy was just (just!) 90%, while in the UK it was 83%.

Even if the 44.1m figure is right, Spain is already 14% more penetrated than Italy was and 21% more than the UK was. On the face of it, this looks like an uphill struggle. However, when churn rates are over 20% annually and ARPUs are amongst the highest in Europe, there has to be some scope to capture part of the low end of the market.

Churn, in particular, represents an opportunity - TeliaSonera estimates that there could be as a many as 11m disconnections in the coming year and it hopes to acquire a minimum of one percent of these. That doesn't seem too ambitious.

Branding could play a crucial role here. Yoigo - an elision of the two Spanish words meaning "I" and "hear" - faces competition not just from the global leader, but also Telefonica's trusted Movistar brand and the recently rebranded Orange. These companies are no lightweights and even the smallest of them - Orange Espana - has nearly 11m customers. The chart below shows the net additions in Spain over the recent quarters, the period which co-incides with Orange's acquisition of Amena, as the company was known at the time. The two big boys haven't let their smaller competitor take a lead in any quarter over the last year and they are unlikely to look to be much more generous with Yoigo. We hope that this doesn't prove to be a case of Yo! I come followed swiftly by Yo! I go...

This article was extracted from The Mobile World Briefing, the weekly newsletter from The Mobile World. To download a sample issue of the Briefing in PDF format, please click here. For more information including full subscription pricing, please visit The Mobile World"

Posted to the site on 7th December 2006