Nordic Region Leads the Way in Mobile Operator Consolidation

Fitch Ratings has said that it feels the mobile sector consolidation in the Nordic region is an indicator of the future development in the rest of the developed European market. While Fitch notes that the future competitive situation in each market will be determined by country-specific regulatory regimes and consumer behaviour, the agency believes that overriding industry economics will lead to the consolidation of independently operated mobile virtual network operators ("MVNO") throughout Europe.

"As the low-cost option in mobile markets, MVNOs were able to gain significant numbers of subscribers, act as price deflators and increase penetration," says Mike Dunning, Managing Director of Fitch's European TMT team. "However as markets have matured, the economies of scale concerning technological innovation, administrative systems and on-net calls have resulted in the larger operators seeking subscriber share in the lower end of the market. This has in turn led to tariff reduction and diminished the profit available for all operators."

On 6 July 2007, Telenor, Noway's leading mobile network operator acquired Talkmore, a small MVNO with 60,000 subscribers in the Norwegian mobile market. As a result of this acquisition, the two Norwegian MNOs, Telenor and TeliaSonera's NetCom, now control over 95% of mobile subscribers in Norway. Therefore, the market's consolidation is effectively complete. Similar consolidation has occurred in other Nordic countries, such as Finland and Denmark. In the latter case, the two remaining independent MVNOs, Debitel and Tele2, were both acquired by the number two and three MNOs, TeliaSonera and Telenor, respectively.

The hunt for efficiencies in network operation is forcing MNOs to utilise the spare capacity on their networks and make the most of the benefits from on-net calls. The reduced tariffs, made possible by the lack of termination fees generated by subscribers communicating over the same network, have given rise to a plethora of on-net promotional plans, reducing the ability of MVNOs to differentiate themselves through price. With the MVNOs margins being further eroded, they are being driven into the hands of the MNOs, who may or may not choose to retain the lower quality brand names of their acquisitions.

Fitch notes that while new MVNOs continue to come to market, they are more often than not targeted at niche, end-user communities and focused on innovative business models. Examples include TDC's MVNO activity in the Nordic market, focused on adding the mobile element to provide a full-service telecom offering for corporate customers in the region, or the upcoming UK launch of the ad-funded mobile service Blyk, which will essentially offer free calls and texts in exchange for advertising delivered to one's handset. Blyk has signed an MVNO agreement with Orange in the UK.

Although Fitch expects most consolidation to involve the acquisition of MVNOs by MNOs, the agency does not rule out the consolidation of MNOs where competitive dynamics allow it. In addition, further cross-border M&A activity can never be ruled out as operators seek to benefit from further economies of scale in a constantly evolving technological environment."

Posted to the site on 16th July 2007