With Telefónica agreeing to sell O2 to Hutchison Whampoa, and BT re-emerging in the consumer mobile market as an MVNO with its SIM-only plans, the UK telecoms sector is now firmly in a convergent mode. Telecoms.com set out to find out how these developments are seen by the analyst community.

Auri Aittokallio

March 25, 2015

8 Min Read
BT Mobile launch and O2 acquisition raise bar for rivals, say analysts

With Telefónica agreeing to sell O2 to Hutchison Whampoa, and BT re-emerging in the consumer mobile market as an MVNO with its SIM-only plans, the UK telecoms sector is now firmly in a convergent mode. Telecoms.com set out to find out how these developments are seen by the analyst community.

Despite some earlier speculation BT would be careful not to go too low in its mobile tariffs to avoid initiating a price war before its intended acquisition of EE closes, the telco has decided to take a fairly aggressive stance with the cheapest deal available at £5 a month. However, reflecting the firm’s multiplay aspirations, the price doubles to £10 for those who don’t subscribe to its broadband as well.

“Today’s launch is more aggressive than many anticipated and underlines BT’s aspirations in the multiplay services market,” Multiplay and Media Director at analysts CCS Insight, Paolo Pescatore said.

“BT has made the right decision to offer a range of simple and transparent packages as part of its return to the consumer mobile market. The £5 SIM-only deal for existing BT broadband households is probably the best value 4G SIM-only deal in the market. We believe this is a hugely attractive offer combining a low-price with inclusive content.”

By making its sports content freely available as part of all of the three newly announced mobile deals via the BT Sport App, as well as offering free access to its five million wifi hotspots, BT seems to be trying to offer something different to gain stronger footing in the market. However, as BT’s broadband customers and those of Virgin Media already have access to this content, this may not be quite as strong a lure as BT is hoping for.

Phil Kendall from Strategy Analytics said: “…there is not much other than low prices to attract at this point in time. BT is talking up free BT wifi and free BT Sport for its mobile customers, though those services are also available free of charge to BT broadband customers with other UK mobile operators.

“It is a good first pass at building a proposition that will appeal to its more loyal residential customers, but we would like to see BT build in more USPs that integrate the mobile experience more into BT’s household propositions.”

Graham Friend, Managing Director telecoms consultancy Coleago, echoed this sentiment. “The combination of discounted pricing, wifi access and exclusive content appears attractive and if customers do sign up then BT may well benefit from the lower churn rates associated with bundled customers,” he said. “What will be interesting is to what extent customers are attracted by the exclusive content versus the low prices.”

While this news marks BT’s re-entrance to the consumer mobile business after a 13-year absence, according to industry intelligence firm Ovum it’s rather like a rehearsal before the real show. “Ovum does not expect BT’s new consumer mobile proposition to change the UK market- yet,” the firm said in a statement. “We see this more as a statement of strategic intent rather than a major push into mobile.

“BT promised to launch a consumer mobile service before the end of its financial year and, with a week to go, it has hit that target. However, it is a first step on a strategic path that will become much more assured upon the completion of its proposed purchase of EE. The UK is moving to a quad-play market and rivals will need to respond.”

Pescatore agreed other players need to get a move on to ensure they can compete in the emerging multiplay market, and said increasing numbers of consumers will turn to bundled offerings in the next four years. “Rivals should be threatened by this move and Sky in particular will need to react given how punchy BT’s SIM only deals are,” Pescatore said.

Rosalind Craven, Research Manager, EMEA Mobility at IDC, thinks this needs to be more than just a dress rehearsal for the EE acquisition. “How BT’s current mobile strategy meshes with its future merging with EE remains to be seen,” she said. “However, it is important to remember that completion of the acquisition may still be some way off, and that even after the acquisition is completed merging of operations will take time, and moreover BT’s consumer strategy teams have no control over these timelines.”

Meanwhile Imran Choudhary, Consumer Insight Director at Kantar Worldpanel, observed the current offering will appeal to some consumers more than others. “SIM-only generally attracts a younger, more urban market, so BT should focus its attentions in that direction while cross-selling its services to its consumer broadband customers- who make up over a quarter of the market- to quickly build up its mobile user base,” he said.

It will be interesting to see what kind of strategies UK’s other operators decide to adopt. Although Three and O2 are now on a brink of a merger, both only have mobile assets.

Bengt Nordström, CEO of consultancy firm Northstream recently told Telecoms.com: “I think they [Three and O2] are obviously becoming much bigger mobile players in the UK and so they are growing in that way. But I would say they need to be more than just plain [mobile] operators.”

If approved, the deal would transform the UK mobile market by reducing the number of operators from four to three, and by creating the new number one in terms of market share.

Kester Mann from CCS Insight said: “It [the acquisition] would create a new market-leader with over 30 million customers and a share of 41%. It would also relegate Vodafone to last place in its home market. The agreement is a win-win for both companies which were looking increasingly vulnerable as pure-play mobile operators in a market rapidly transitioning towards multi-play.

“However, the new entity still would not own any fixed-line assets. This means that Hutchison will need to make a quick decision regarding the intended future direction of the company. If it decides to pursue a multiplay strategy, competing directly with the likes of BT, Vodafone and Virgin Media, it could look to either wholesale access to fixed-line networks or consider making an additional acquisition such as TalkTalk.”

The other option seems to be to continue as a pure mobile player targeting customers who don’t want to buy all of their telecoms services from one provider. Although the move towards multiplay is largely driven by consumer behaviour, Nordström thinks the time for mobile-only providers isn’t entirely over. “I don’t think the single players will disappear in a very short time,” he said.

“It’s more the direction the industry is evolving. It sort of happens in waves, and I think it will take some time for customers to start buying quad-play offerings.”

Ernest Doku from consumer comparison site uSwitch.com said: “Whilst multiple services with one provider can offer simplicity for consumers, with so many different bundles available for different products, it can be trickier to compare deals across providers, and subsequently to know if you are getting a good deal.”

It is worth considering though that over time the size of the market for mobile-only players is bound to reduce in size, and it is difficult to see the biggest operators could afford to miss out on the convergent trend. It is easier to imagine MVNOs targeting the lower-paid segments of the market with mobile-only offers.

As for the expected result at the end of a successful regulatory scrutiny process for Hutchison’s bid for O2, at this stage can only be speculated on. Apart from the mobile-only angle, Three and O2 have quite different models, particularly in terms of pricing.

Stefan Zehle, CEO of Coleago Consulting said: “Three positioned itself as the challenger with unlimited data bundles, low voice rates and innovative roaming deals. Analysing the current tariffs of Three and O2, some startling differences emerge.”

Possibly the biggest difference is what each charges for roaming. Three offers free unlimited roaming in 16 countries, set to be increased to 18 from next month, while O2 offers s100MB of general data or 50MB of streaming for £1.99 a day within Europe.

“With such differences in price points, depending how prices and services will be realigned after the merger, the impact on UK consumers could either be negative or highly positive,” Zehle said. “Three and O2 are considering maintaining both brands which would get around the problem of aligning prices but would also result in higher costs to the merged company. We will probably have to wait until 2016 to find out.”

All these developments in the UK mobile sector point to convergence, and it is likely other players such Vodafone, Sky and TalkTalk are weighing up their options quite urgently. Of course the two proposed acquisitions need to be cleared by regulators, and in O2’s case on European level too.

But the long established trend towards multiplay communications service bundling has clearly been accelerated by BT’s move into mobile, and at the same time the industry is also consolidating. No competitors, regardless of their size, can afford to feel secure at this time and the likes of Vodafone, Sky and Virgin need to have a serious think about how they’re going to respond.

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About the Author(s)

Auri Aittokallio

As senior writer for Telecoms.com, Auri’s primary focus is on operators but she also writes across the board the telecoms industry, including technologies and the vendors that produce them. She also writes for Mobile Communications International magazine, which is published every quarter.

Auri has a background as an ICT researcher and business-to-business journalist, previously focusing on the European ICT channels-to-market for seven years.

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