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There is a Role for Challengers in the European Mobile Communications Market

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The global economic downturn has taken its toll on industries across the globe, and the mobile and wireless communications industry is no exception. In the European market, which is highly saturated and competitive, mobile network operators (MNOs) are in a survival of the fittest battle to maintain and expand their market share. On the fringes of this battle are new entrants, challenging established MNOs to stay in the game.

The question is whether or not there is space for these new entrants in an established market, especially during these economic times, when smaller companies could be viewed as potential acquisition targets.

According to Yiru Zhong, Frost & Sullivan's analyst: "Analyzing the performance of new MNO entrants, there are three MNOs with interesting developments: 3 in Italy and the UK, P4 (or its brand name, Play) in Poland, and Yoigo in Spain." 3 began its operations in 2003, when the Italian market had almost 100% population penetration and was dominated by three major players: TiM, who held 45% of the market; Vodafone, a 33% market share; and WIND, with the remainder. 3 UK faced equally challenging conditions as the UK mobile market had four dominant players, Vodafone, Orange, T-Mobile and O2, all of whom occupied a relatively equal market share. As such, 3 UK became the fifth MNO at a time when only 10% of the population did not have a mobile subscription. By the end of their second year of operation in 2004, both 3 UK and 3 Italy had managed to capture 4 - 5% share of subscribers in their respective markets. In order to sustain and grow customer scale, 3 moved away from being a mobile communications company to become a multimedia service provider.

P4 in Poland launched its operations in 2007 with its brand name, Play, at a time when the population penetration was 109% and the market was dominated by TP, Era and Plus. Play specifically targeted the youth segment and had the explicit vision of becoming the "interactive mobile operator." Play entered into a strategic partnership with Onet.pl, one of Poland's key online players, to combine its wireless communication services with internet-based opportunities such as social networking. This is a critical differentiator as Play becomes the only MNO in the Polish market which enables customers to move seamlessly between the mobile and internet worlds. Play's key to success was its decision to focus on a specific group of customers, the youth segment, and to serve it well. This strategy, combined with a competitive pricing approach, helped Play to gain a 5% market share by the end of 2008 in its second year of operations. This puts its performance on par with 3's historic performance in 2004.

As an alternative to the three MNOs in Spain, Yoigo entered the market in December 2006 as a no-frills operator with simple, low cost and efficient service. At the time of Yoigo's entry, the market penetration exceeded 100% at 107% and there were already three established players in Movistar (Telefonica's mobile arm), Vodafone and Orange. Yoigo not only invested in building its own network but also positioned itself as the alternative newcomer by highlighting its simple tariff plans and low cost service. By the end of 2008, it appeared that Yoigo's performance did not match what other challengers such as 3 and Play had achieved in terms of market share. Yoigo had only managed to gain a 2% subscriber market share. Nonetheless, Yoigo's business plan relies on its ability to control cost while maintaining its low tariff strategy. As such, Yoigo is an enthusiastic supporter of outsourcing functions, from network operations to IT activities to online distribution. While it remains to be seen if this cost control strategy works out in the long run, Yoigo demonstrated the effectiveness of online distribution channels. This in turn may have indirectly triggered a rethink in Vodafone's and Orange's distribution strategies in Spain.

"We believe that there is a role for challengers in the mobile market as competition increases innovation in the market. There are two main lessons from the performances of 3, Play and Yoigo," observes Frost & Sullivan analyst Yiru Zhong. "First, new entrants, whatever their market performance, have the ability to motivate established players to accelerate innovation ranging from service offerings to partnerships to the way they engage with existing and new customers. Second, a successful value proposition cannot rely on low cost alone. Yoigo's performance in terms of market share confirmed this view that was first evident from the lack of sustained success in Virgin Mobile and other low cost MVNOs in UK. Yoigo can become a viable MNO in the mobile market by redefining its value proposition to tap into a specific customer segment or customer need."

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